Edited version of private advice

Authorisation Number: 1051603861793

Date of advice: 5 December 2019

Ruling

Subject: Fringe benefits tax - remote area housing loan and housing rent benefits

Question 1

Can the taxable value of an expense payment fringe benefit in respect of remote area housing loan interest be reduced by 50% by the application of subsection 60(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes. However, you will still incur fringe benefits tax because the concession in subsection 60(2) only reduces the taxable value of the expense payment fringe benefit by 50%.

Question 2

Can the taxable value of an expense payment fringe benefit in respect of remote area housing rent be reduced by 50% of the gross rent incurred by the employee by the application of subsection 60(2A) of the FBTAA?

Answer

Yes

This ruling applies for the following periods

Year ended 31 March 2020

Year ended 31 March 2021

Year ended 31 March 2022

Year ended 31 March 2023

The scheme commenced on

9 August 2019

Relevant facts

The business is located in a remote area in Zone B for income tax purposes.

Employees of the business live and work in the remote area. The house they reside in is their usual place of residence and the employee pays housing loan interest or makes rental payments relating to the residence.

The business would like to offer existing and potential employees the ability to salary sacrifice an amount equivalent to 50% of either their housing loan interest or rental payments without incurring a Fringe benefits tax liability.

It is claimed by the business, that many large and small businesses in the region are also offering similar salary packages to new and existing employees.

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 business to obtain the benefit of any relevant section of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

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

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 20

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 136(1)

Fringe Benefits Tax Assessment Act 1986 Section 140

Fringe Benefits Tax Assessment Act 1986 Section 142

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(2E)

Reasons for decision

Question 1

Can the taxable value of an expense payment fringe benefit in respect of remote area housing loan interest be reduced by 50% by the application of subsection 60(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

An employee salary sacrifices an amount equivalent to 50% of his or her housing loan interest, in exchange for the employer paying or reimbursing 50% of the employee's housing loan interest. This gives rise to an expense payment benefit under section 20 of the FBTAA:

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 fringe benefit will arise when you either pay the loan interest or reimburse your employee for the loan interest and this benefit is provided in respect of the employee's employment.

Subsection 60(2) of the FBTAA relates to a reduction of taxable value for remote area housing loan interest involving a recipient of an expense payment fringe benefit, as follows:

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 a period ( 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.

Expense payment fringe benefit provided to an employee of the employer

A current employee of the employer will salary sacrifice an amount equivalent to 50% of his or her mortgage interest in exchange for the employer paying or reimbursing 50% of the employee's mortgage interest. The recipient of an expense payment fringe benefit is therefore an employee of the employer. Paragraph 60(2)(a) of the FBTAA is satisfied.

Remote area housing loan

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

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.

Eligible urban area

Subsection 140(1) of the FBTAA sets out the criteria in relation to an eligible urban area:

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.

Common conditions

Subsection 142(2E) of the FBTAA sets out the 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 employee'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.

The Australian Taxation Office (ATO) website, under Fringe benefits tax - remote areas, confirms that the relevant town is in a remote area on List 1 in relation to remote area housing loan and remote area housing rent benefits for the following reasons:

·        it is in Zone B for income tax purposes, and

·        is at least 40 kilometres from an urban centre that had a population of 28,000 to less than 130,000 at the 1981 Census, and

·        is at least 100 kilometres from an urban centre of 130,000 or more at the 1981 Census.

The employee occupies a dwelling in a town, which is in a state, and is not in, or adjacent to an eligible urban area as confirmed by the ATO website. Paragraph 142(1)(a)(i) of the FBTAA is satisfied.

The employee is a current employee of the employer and the usual place of employment is in a town which is not in, or adjacent to an eligible urban area. Paragraph 142(1)(a)(ii) of the FBTAA is satisfied.

It is assumed that it is customary in the business'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. Paragraph 142(1)(b) of the FBTAA is satisfied.

It is assumed 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 business to obtain the benefit of the application of section 60 of the FBTAA. Paragraphs 142(1)(d)(i) and (ii) of the FBTAA are satisfied.

All of the criteria in subsection 142(1) of the FBTAA relating to remote area housing loan are satisfied. The recipient's expenditure is in respect of interest in respect of a remote area housing loan connected with a dwelling. Paragraph 60(2)(b) of the FBTAA is satisfied.

Dwelling as the usual place of residence

The recipient of the expense payment fringe benefit, the employee, will occupy or use the dwelling as his or her usual place of residence during the occupation period in which the interest accrued. Paragraph 60(2)(c) of the FBTAA is satisfied.

Fringe benefit not a non-arm's length arrangement, or an arrangement to obtain benefit

It is assumed 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 business to obtain the benefit of the application of section 60 of the FBTAA. Paragraph 60(2)(d)(i) and (ii) of the FBTAA is satisfied.

Conclusion

All of the criteria in subsection 60(2) of the FBTAA are satisfied. The taxable value of a remote area housing loan benefit can be reduced by 50%. However, you would still incur FBT under your proposed arrangement relating to remote area housing loan interest on the residual 50% of the taxable value.

Question 2

Can the taxable value of an expense payment fringe benefit in respect of remote area housing rent be reduced by 50% of the gross rent incurred by the employee by the application of subsection 60(2A) of the FBTAA?

Subsection 60(2A) of the FBTAA relates to a reduction of taxable value for remote area housing rent for a recipient of an expense payment fringe benefit, as follows:

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 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 a period (in this section called the "occupation period") during which the rent 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 the recipients expenditure as relates to the occupation period.

Expense payment fringe benefit provided to an employee of the employer

A current employee of the employer will salary sacrifice the equivalent of 50% of his or her housing rent payments in exchange for the employer paying or reimbursing an equal amount towards the employee's housing rent payments. The recipient of an expense payment fringe benefit is therefore an employee of the employer. Paragraph 60(2A)(a) of the FBTAA is satisfied.

Remote area housing rent connected with a unit of accommodation

Subsection 142(1A) of the FBTAA sets out the criteria that must be satisfied for rent payments to be considered 'remote area housing rent connected with a unit of accommodation'.

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 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.

The employee occupies a unit of accommodation under a lease or licence in a town, which is in a state, and is not in, or adjacent to an eligible urban area as confirmed by the ATO website. Paragraph 142(1A)(a)(i) of the FBTAA is satisfied.

The employee is a current employee of the employer and the usual place of employment is in a town which is not in, or adjacent to an eligible urban area. Paragraph 142(1A)(a)(ii) of the FBTAA is satisfied.

It is assumed the common conditions contained in subsection 142(2E) have been met, specifically: that it is customary in the business's industry for employers to provide remote area housing fringe benefits to attract and retain various classes of employees at remote locations where their operations occur. Paragraph 142(1A)(b) of the FBTAA is satisfied.

It is assumed 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 business to obtain the benefit of the application of section 60 of the FBTAA. Paragraphs 142(1A)(d)(i) and (ii) of the FBTAA are satisfied.

All of the criteria in subsection 142(1A) of the FBTAA relating to remote area housing rent are satisfied. The recipient's expenditure is in respect of rent in respect of a remote area housing rent connected with a unit of accommodation. Paragraph 60(2A)(b) of the FBTAA is satisfied.

Dwelling as the usual place of residence

The recipient of the expense payment fringe benefit, the employee, will occupy or use the unit of accommodation as his or her usual place of residence during the occupation period in which the housing rent accrued. Paragraph 60(2A)(c) of the FBTAA is satisfied.

Fringe benefit not provided under a non-arm's length arrangement, or an arrangement to obtain benefit

It is assumed 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 business to obtain the benefit of the application of section 60 of the FBTAA. Paragraph 60(2A)(d)(i) and (ii) of the FBTAA is satisfied.

Conclusion

All of the criteria in subsection 60(2A) of the FBTAA are satisfied. The taxable value of a remote area housing rent benefit can be reduced by 50% of so much of the 'recipients expenditure' as relates to the occupation period.

'Recipients expenditure' is defined in section 136(1) and it means the expenditure incurred by the recipient as mentioned in paragraph 20(a) or (b). The recipients expenditure in this case will be the gross rent the employee incurs before you make payment or reimbursement for their expense.

As such, you would not incur FBT under your proposed arrangement relating to remote area housing rent because the taxable value of the expense payment fringe benefit would be reduced to zero.