Edited version of private advice

Authorisation Number: 1052080739217

Date of advice: 13 February 2023

Ruling

Subject: Housing benefits

Question

Is the remote area housing benefit exemption applicable to the employer (the Company) in accordance with section 58ZC of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following periods:

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

The scheme commenced on:

1 April 20XX

Relevant facts and circumstances

The Company is an incorporated, private entity.

The Company operates a tourism and wholesale business.

The Company employs staff both full-time and part-time.

The business is located in a remote area.

The closest urban centres to the remote location are:

• 44 km
• 58 km
• 76 km
• 91 km
• 45 km
• 38 km (with a population of < 500 according to the 2016 census)

The remote area is not listed within Zone A or Zone B for income tax purposes.

The remote area does not have any public transport.

The Company has difficulty in recruiting and retaining staff due to the absence of affordable housing near the company's operations.

A search of available rental properties conducted on the Domain website on 25 November 2022 show only two available properties for rent.

The Company is proposing to provide housing benefits to employees.

Housing benefits will be used to attract new employees and will be offered to current employees.

The housing will be provided by way of the Company leasing via a third party, or the Company purchasing or constructing accommodation, and providing same to employees for either no consideration or at consideration less than market value.

The leasing arrangements will be for periods of at least six months. The ongoing right to occupy the premises will be dependent upon on-going employment with the Company.

The living and working arrangements of the employees will be such that the accommodation provided will at least during the time of its provision be the usual place of residence of the employee.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 25

Fringe Benefits Tax Assessment Act 1986 Section 58ZC

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Section 140

Income Tax Assessment Act 1936 Schedule 2

Reasons for decision

Housing benefits

Section 25 of the FBTAA states a housing benefit will arise in relation to a year of tax where a 'housing right', is granted by one person (the provider) to another person (the recipient), during all or part of that year.

Subsection 136(1) of the FBTAA defines a 'housing right' as a lease or licence granted to a person to occupy or use a unit of accommodation as that person's usual place of residence at that time.

A 'unit of accommodation' is also defined in subsection 136(1) of the FBTAA to include either a house, a flat or a home unit or, alternatively, the provision of accommodation in any of those places. The terms 'lease' and 'licence' are not defined in the FBTAA. On their ordinary meaning, these terms would include the granting of a right to use the specified land for accommodation purposes.

The FBTAA does not define 'usual place of residence'. However, in subsection 136(1) of the FBTAA, it does define a 'place of residence' to mean:

(a)  a place at which the person resides; or

(b)  a place at which the person has sleeping accommodation;

whether on a permanent or temporary basis and whether or not on a shared basis.

In the absence of a legislative reference, it is relevant to refer to the ordinary meaning of 'usual'. The Macquarie Dictionary Online defines 'usual' to mean:

1. habitual or customary: his usual skill.

2. such as is commonly met with or observed in experience; ordinary: the usual January weather.

3. in common use; common: say the usual things.

noun

4. that which is usual or habitual.

phrase

5. as usual, as is (or was) usual; in the customary or ordinary manner: he will come as usual.

Whether a place is an employee's usual place of residence is a question of fact, based on all the circumstances.

Based on the facts provided, the Company is intending on providing housing to both current and new employees that live and work in a remote area near their business premises. The accommodation is the employee's usual place of residence.

This arrangement therefore satisfies the definition of a 'housing benefit' as defined in section 25 of the FBTAA.

Remote area housing benefits

A housing benefit provided to an employee may be an exempt benefit under subsection 58ZC(1) of the FBTAA as a 'remote area housing benefit' provided the conditions of subsection 58ZC(2) of the FBTAA are met in full.

A remote area housing benefit is defined in subsection 136(1) of the FBTAA as having the meaning given by subsection 58ZC(2). The conditions for a housing benefit to be a 'remote area housing benefit' are set out in subsection 58ZC(2) of the FBTAA, as stipulated below.

A housing benefit in relation to an employer for a year of tax and for a unit of accommodation, being a benefit provided to an employee of the employer in respect of the employee's employment, is a remote area housing benefit if:

(a) The unit of accommodation for the whole of the tenancy period must not be at a location in or adjacent to an 'eligible urban area'.

(b) The employee must be a current employee of the employer for the whole tenancy period and the employee's usual place of employment must not be at a location in or adjacent to an eligible urban area during that period.

(c) .............

(d) It would be concluded that it was necessary for the employer to provide, or to arrange for the provision of, free or subsidised accommodation to employees for any of the following reasons:

(i) the nature of the employer's business is such that employees are likely to move frequently from one residential location to another;

(ii) there is no sufficient suitable residential accommodation otherwise available in the area in which the employee is employed; or

(iii) it is customary in the employer's industry to provide free or subsidised housing to employees.

(e) The arrangement under which the housing right is provided must not be a non-arm's length arrangement nor provided under an arrangement for the purpose of enabling the employer to obtain the benefit of the application of the section.

The term 'in respect of the employment of the employee' was considered in J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 (Knowles). The Full Federal Court in Knowles - in examining the meaning of 'in respect of' an employee's employment - held that the phrase required a 'nexus, some discernible and rational link, between the benefit and employment', though noted that 'what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment'. A similar view was also held in Essenbourne Pty Ltd v FC of T 2002 ATC 5201 and Starrim Pty Ltd v FCT (2000) 102 FCR 194; [2000] FCA 952; 2000 ATC 4460; (2000) 44 ATR 487.

The Full Federal Court in Knowles also suggested that it would be useful to ask, 'whether the benefit is a product or incident of the employment'.

To establish whether a sufficient or material connection exists between the contemplated provision of the accommodation and the employment of the employee, it is necessary to consider the circumstances in which the benefits are intended to be provided.

The Company has indicated that they intend to provide housing benefits to all employees currently living and working in the remote area as well as those who are required to move to the remote area to perform their duties with a view to attracting more suitable workforce.

Therefore, the connection between the benefit to be provided to the employee and the employee's employment would be material and sufficient, and not merely causal. If it were not for the employee's employment, the employee would not receive the accommodation benefit.

Paragraph 58ZC(2)(a) of the FBTAA

A unit of accommodation will be treated as being in a remote area if it is not located in, or adjacent to, an eligible urban area.

Pursuant to paragraph 140(1)(a) of the FBTAA, an 'eligible urban area' is an area that is either:

• situated in Zone A or Zone B for income tax purposes (as described in Parts I and II respectively in Schedule 2 to the Income Tax Assessment Act 1936 (ITAA 1936)) and is an urban centre with a 1981 census population of not less than 28,000, or
• not situated in Zone A or Zone B for income tax purposes and is an urban centre with a 1981 census population of not less than 14,000.

According to paragraph 140(1)(b) of the FBTAA, an area that is 'adjacent to an eligible urban area' is an area that is situated either:

•         less than 40 kilometres by the shortest practicable surface route from the centre of an eligible urban area with a 1981 census population of less than 130,000, or

•         less than 100 kilometres by the shortest practicable surface route from the centre of an eligible urban area with a 1981 census population of 130,000 or more.

The town is not situated in Zone A or B and has a population of less than a 1,000. The employee's usual place of employment is not situated in or adjacent to an eligible urban area for the purposes of section 140. The Company is located in a remote location for FBT purposes.

Therefore, as the employees would reside in a remote area - the condition in paragraph 58ZC(2)(a) of the FBTAA would be satisfied.

Paragraph 58ZC(2)(b) of the FBTAA

Based on the facts provided, it would be accepted that during the relevant period of the arrangement, the employees who would occupy a unit of accommodation provided by the Company would be a current employee, and their usual place of employment would be X and, as concluded above, would not be located within or adjacent to an eligible urban area.

Therefore, the condition in paragraph 58ZC(2)(b) of the FBTAA would be satisfied.

Paragraph 58ZC(2)(d) of the FBTAA

Paragraph 58ZC(2)(d) requires any one of the conditions under subparagraphs 58ZC(2)(d) (i), (ii), (iii) must be satisfied.

The Company has advised that there is insufficient suitable residential accommodation available in the town where the business premises are located. A search of available rental properties conducted on the Domain website on 25 November 2022 showed only two properties available for rent. A further search was conducted by the ATO on the Domain website on 25 January 2023 which showed three properties available for rent. A further search was conducted on realestate.com.au on the same date and no houses were available for rent. It is noted that there were a considerable number of houses available for purchase at very unaffordable prices for most people.

Accordingly, subparagraph 58ZC(2)(d)(ii) has been satisfied as there is not sufficient residential accommodation available for employees.

Therefore, the condition in paragraph 58ZC(2)(d) of the FBTAA would be satisfied

Paragraph 58ZC(2)(e) of the FBTAA

Under paragraph 58ZC(2)(e) of the FBTAA, the arrangement under which the accommodation is provided must be an arm's length arrangement and must not be provided under an arrangement for the purposes of obtaining the concessions provided by section 58ZC of the FBTAA.

The Company has advised that the arrangements are provided under an arm's length arrangement, and it is not an arrangement for the purpose or purposes of enabling the Company to obtain the benefit of any relevant section of the FBTAA. It would therefore be accepted for the purposes of this ruling that the benefit will be provided at arm's length for the purposes to attract and retain suitably qualified employees in a remote area.

Accordingly, the requirements of paragraph 58ZC(2)(e) of the FBTAA would be satisfied.

However, the Company should be aware that the provision of housing benefits to individuals who are existing employees and already are leasing accommodation in the area, could be considered an arrangement entered for a purpose "that included the purpose" of enabling the employer to obtain the benefit of subparagraph 58ZC(2)(e)(ii) of the FBTAA. For an example of this, refer to ATO ID 2001/761 and ATO ID 2002/412 that consider this subparagraph for housing benefits provided to existing employees.

Conclusion

In circumstances where employees enter into a housing arrangement with the Company, a housing benefit is provided pursuant to section 25 of the FBTAA.

As per the discussion above, each of the conditions are satisfied therefore the housing benefits constitute a remote area housing benefit pursuant to section 58ZC of the FBTAA.