Edited version of private advice

Authorisation Number: 1052086966496

Date of advice: 20 February 2023

Ruling

Subject: Relocation expenses

Question 1

Will the reimbursement from the employer to the employee for the acquisition costs associated with the purchase of the proposed family residence as a result of relocation from one locality to another, be an exempt benefit under section 58C of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)?

Answer

No.

Question 2

Will the reimbursement from the employer to the employee for the connection or reconnection of certain utilities as a result of relocation from one locality to another, be an exempt benefit under section 58D of the FBTAA 1986?

Answer

Yes.

Question 3

Will the reimbursement from the employer to the employee of temporary accommodation in Canberra as a result of relocation from one locality to another, be an exempt benefit under section 61C of the FBTAA 1986?

Answer

Yes.

This ruling applies for the following periods:

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

The scheme commenced on:

28 January 20XX

Relevant facts and circumstances

The employee is a project manager.

From February 20XX to January 20XX the employee was located in X where the company was also located.

During that time the employees usual place of residence was in X, where he rented a residential rental property with his family.

In January 20XX the Employer ceased operations in its X Office.

The employee was instructed to move interstate to continue employment with the company and to manage a major commercial project for the company.

The employee commenced working in the new location from xx January 20xx.

From XX January 20XX to February 20XX the employee was renting temporary accommodation.

The rental agreement was terminated on X February 20XX.

On X May 20XX the employee notified his employer that he was experiencing issues in finding long term accommodation.

On XX June 20XX the Employee signed a building contract for long-term accommodation. On XX June 20XX the contract was exchanged.

In February 20XX, the employee moved into the long-term accommodation and terminated the rental agreement.

The employee intends to seek reimbursement from the employer under a salary sacrifice arrangement to be reimbursed the costs associated with the relocation including, temporary accommodation and the connection of utilities.

In relation to the purchase of the new property, the employee wants to salary sacrifice the Stamp Duty and Legal Fees.

The employee will provide the employer with invoices and documentation for all the expenses intended to be reimbursed for under the salary sacrifice arrangement.

Relevant legislative provisions

Section 58C of the Fringe Benefits Tax Assessment Act 1986

Section 58D of the Fringe Benefits Tax Assessment Act 1986

Section 61Cof the Fringe Benefits Tax Assessment Act 1986

Reasons for decision

Question 1

Will the reimbursement from the employer to the employee for the acquisition costs associated with the purchase of the proposed family residence as a result of relocation from one locality to another, be an exempt benefit under section 58C of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)?

Summary

No, this reimbursement will not be an exempt benefit under section 58C of the FBTAA as outlined below.

Detailed reasoning

Section 58C of the FBTAA exempts from FBT benefits relating to certain incidental costs, such as stamp duty, and legal expenses incurred in the sale or purchase of a dwelling by an employee who changes his or her usual place of residence in the course of employment or in order to commence employment.

For the exemption to apply the pre-conditions set out in subsection 58C(1) of the FBTAA must be satisfied. If the conditions set out in subsection 58C(1) of the FBTAA are satisfied, then subsection 58C(3) can be considered in relation to the costs incurred in the purchase of the new residence.

Section 58C(1) of the FBTAA states:

[Sale or acquisition of dwelling] 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;

(B) the employee or associate proposes to construct, or complete the construction of, 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 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;

(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; and

(e) (Repealed by No 23 of 2002)

...

In considering the conditions contained within subsection 58C(1).

(a) Did the employee hold during the "former home holding period" an interest in land on which there is a dwelling, stratum unit, flat or home unit, or propose to construct a dwelling?

During the "former home holding period" the employee did not hold an interest in land on which there is a dwelling. Therefore, this condition is not satisfied.

(b) Did the employee sell the interest or right solely because he was required to change his usual place of residence in order to perform the duties of his employment?

Section 58C(1)(b) of the FBTAA contains three elements, namely,

(1) Was the employee required to change his or her usual place of residence?

(2) Was the required relocation to enable the employee to carry out duties of employment?

(3) Was the sale of property solely because the employee is required to relocate and is required to relocate in order to perform the duties of employment?

(1) Was the employee required to change his usual place of residence?

The meaning of the word "required" was discussed by the Administrative Appeals Tribunal in Compass Group (Vic) Pty Ltd (as trustee for White Roche & Associates Hybrid Trust) v FC of T [2008] AATA 845; 2008 ATC 10-051 as follows;

The ordinary meanings of the word "require" include:

"...1a to need something; b to wish to have something. 2 to demand, exact or command by authority. 3 to have as a necessary or essential condition for success, fulfilment etc ..."

The word "require" does not contemplate choice.

Application to your circumstances

The employee commenced his employment duties with the employer in February 20XX in the state of X.

While in X the employee did not own a residential property. The employee was required to change his usual place of residence in order for him to perform his duties of employment. Business operations for the company were ceasing in X and the employee was required to relocate interstate to perform his project management job.

Therefore, the facts as provided show that the employee was required to change his usual place of residence.

(2)Was the required relocation to enable the employee to carry out duties of employment?

A required relocation to enable an employee to carry out duties of employment implies that in a practical sense the relocation was required because otherwise the duties of employment could not be carried out.

The employer required that the employee carry out his duties of employment interstate. At the time the employees usual place of residence was in X. It was therefore impossible, for the employee to carry out his duties of employment while living at the former usual place of residence.

Therefore, the relocation was required to enable the employee to carry out his duties of employment.

(3) Was the sale of property solely because the employee is required to relocate and is required to relocate in order to perform the duties of employment?

The facts tell us that whilst residing in X, the employee did not own a residential property. He rented a property with his family. Therefore, as he did not own a residential property in X, he was not required to sell that property before relocating to perform his duties of employment.

Therefore, it is concluded that the employee did not sell his former residence in X (as he did not own one to sell) because he was required to change his usual place of residence in order to perform his duties of employment.

This condition is not satisfied.

(c) Did the employer first notify his employee 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?

The employee resided at his former residence until January 20xx. The employer first notified the employee during the period that he held the residence (rental property), that he was required to perform the duties of his employment at his new place of employment, interstate.

This condition is satisfied.

(d) Did the employee occupy, or propose to occupy, at the notice time, the dwelling, or propose to occupy the proposed dwelling, as his usual place of residence?

At the notice time, when the employer first notified the employee of the position the employee occupied the dwelling as his usual place of residence.

This condition is satisfied.

Summary

All the conditions of section 58C(1) of the FBTAA are not satisfied therefore subsection 58C(1) of the FBTAA does not apply and the accompanying subsection 58C(3) of the FBTAA also do not apply. Hence the reimbursement of relocation expenses in this situation will not be an exempt benefit.

Question 2

Will the reimbursement from the employer to the employee for the connection or reconnection of certain utilities as a result of relocation from one locality to another, be an exempt benefit under section 58D of the FBTAA 1986?

Summary

Yes, the reimbursement will be exempt under section 58D of the FBTAA.

Detailed reasoning

Relocation expenses come within the terms of miscellaneous exempt benefits in Division 13 of the FBTAA 1986. Section 58D exempts from fringe benefits tax a benefit in relation to the connection or re-connection of certain utilities as a result of relocation.

Subsection 58D(1) contains a provision relating to the telephone service while subsection 58D(2) relates to gas or electricity.

Telephone

Subsection 58D(1) applies to telephone services where the benefit provided is in respect of a year of tax in respect of the employment of an employee.

Where:

•         the benefit is an expense payment benefit and the recipient's expenditure are in respect of the act of connecting or re-connecting a telephone service to a unit of accommodation - subparagraph 58D(1)(a)(i).

•         the unit of accommodation is for the accommodation of family members - paragraph 58D(1)(b);

•         the accommodation is required solely because the employee is required to change his or her usual place of residence in order to perform the duties of their employment - subparagraph 58D(1)(c)(ii);

•         documentary evidence of the recipient's expenditure is obtained by the recipient and that documentary evidence, or a copy is given to the employer before the declaration date - paragraph 58D(1)(d);

•         the telephone service is connected or re-connected not later than 12 months after the day on which the employee commenced to perform the duties of that employment at the employee's new place of employment; 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; and the benefit was not provided under a non-arm's length arrangement. subparagraphs 58D(1)(e)(i), (ii) & (iii).

As all these conditions are met the benefit (being reimbursement of the cost of telephone connection or re-connection) is an exempt benefit in relation to the year of tax.

Gas or electricity

Subsection 58D(2) applies to gas or electricity supply where the benefit is provided is in respect of a year of tax in respect of the employment of an employee.

Where:

•         the benefit is an expense payment where the recipient's expenditure is in respect of the act of re-connecting gas or electricity to a unit of accommodation - subparagraph 58D(2)(a)(i).

•         the unit of accommodation is for the accommodation of family members - paragraph 58D(2)(b);

•         the accommodation is required solely because the employee is required to change his or her usual place of residence in order to perform the duties of their employment - subparagraph 58D(2)(c)(ii);

•         documentary evidence of the recipient's expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date - paragraph 58D(2)(d)

•         the gas or electricity supply is re-connected not later than 12 months after the day on which the employee commenced to perform the duties of that employment at the employee's new place of employment; and the benefit was not provided under a non-arm's length arrangement - subparagraph 58D(2)(e)(i) & (ii).

As all these conditions are met the benefit (being reimbursement of the cost of gas or electricity re-connection) is an exempt benefit in relation to the year of tax.

Question 3

Will the reimbursement from the employer to the employee of temporary accommodation in Canberra as a result of relocation from one locality to another, be an exempt benefit under section 61C of the FBTAA 1986?

Summary

Yes, this reimbursement will be a fringe benefit eligible for the reduction of its taxable value under section 61C of the FBTAA.

Detailed Reasoning

Subsection 61C(1) allows for the taxable value of certain fringe benefits relating to temporary accommodation to be reduced under certain defined circumstances.

Subsection 61C(1) of the FBTAA states the following conditions for application of a reduction of the taxable value of temporary accommodation relating to relocation:

[Conditions for application of reduction]

Where:

(a) any of the following fringe benefits is provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer:

(i) an expense payment fringe benefit where the recipient's expenditure is in respect:

(A) a lease or licence in respect of a unit of accommodation occupied or used for the temporary accommodation of family members; or

(B) a lease or licence in respect of goods primarily for domestic use by family members, being domestic use in connection with a unit of accommodation occupied or used for the temporary accommodation of family members;

(ii) a housing fringe benefit where the housing right is in respect of a unit of accommodation occupied or used for the temporary accommodation of family members;

(iii) a residual fringe benefit where the recipients benefit:

(A) is constituted by the subsistence of a lease or licence in respect of a unit of accommodation occupied or used for the temporary accommodation of family members; or

(B) is constituted by the subsistence of a lease or licence in respect of goods primarily for domestic use by family members, being domestic use in connection with a unit of accommodation occupied or used for the temporary accommodation of family members;

(b) the temporary accommodation is required solely because the employee is required to change his or her usual place of residence in order to perform the duties of that employment;

(c) if the unit of accommodation is located at or near the employee's former usual place of residence - the temporary accommodation was required because the unit of accommodation that was the employee's former usual place of residence became unavailable, or unsuitable, for residential use by family members due to removal, storage or other arrangement relating to the change in the usual place of residence of the employee;

(d) if the unit of accommodation is located at or near the employee's new place of employment - the employee, or an associate of the employee, either before, on, or as soon as reasonably practicable after, the day (in this section called the "relocation day") on which the employee commenced to perform the duties of that employment at the employee's new place of employment, commenced sustained reasonable efforts to acquire, or to acquire the right to occupy or use, a unit of accommodation intended by the employee or associate, as the case may be, to provide a long-term place of residence for the employee; and

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

the following provisions (i.e., subsections 61C(1) - 61C(5)) have effect.

Was a benefit provided to the employee in respect of a lease or licence of a unit of accommodation?

The employee's payment of rent interstate will be reimbursed by the employer under a salary sacrifice arrangement, giving rise to an expense payment benefit.

Sub-subparagraph 61C(1)(a)(i)(A) of the FBTAA is satisfied.

Was the temporary accommodation required solely because the employee is required to change his usual place of residence in order to perform the duties of employment?

It is accepted that the temporary accommodation, being rental accommodation interstate, was required solely because the employee was required to change their place of residence in order to perform their duties of employment.

Paragraph 61C(1)(b) of the FBTAA is satisfied.

With the unit of accommodation being near the employee's new place of employment, has the employee sustained reasonable efforts to acquire a long-term place of residence?

The employee's unit of accommodation is near the employee's new place of employment. The employee attended numerous open houses and conducted market research and made enquiries in relation to home loans. Once the lease expired on X February 20XX the employee purchased a property. It is accepted that the employee intended to acquire a property at the termination of the lease and made reasonable efforts to acquire a long-term place of residence.

Paragraph 61C(1)(d) of the FBTAA is satisfied.

Was the benefit provided under an arm's length arrangement?

The expense payment benefit was provided with the employer and employee dealing with each other at arm's length.

Paragraph 61C(1)(e) of the FBTAA is satisfied.

Conclusion

As the employee satisfies all of the conditions for application of the reduction outlined in subsection 61C(1) of the FBTAA, subsections 61C(2) - 61C(5) have effect.

If the temporary accommodation benefit falls within the scope of subsection 61C(1), then either subsection 61C(2) or subsection 61C(3) may operate to reduce the taxable value. In this case, subsection 61C(3) is the relevant provision, because it relates to temporary accommodation obtained near the new usual place of employment.

Subsection 61C(3)

Subsection 61C(3) of the FBTAA states the following:

[Accommodation near new place of residence]

Where:

(a)  paragraph (1)(d) applies;

(b)  any of the following subparagraph applies:

(i)            ...

(ii)           the employee, not later than 4 months after the relocation day, pursuant to a contract entered into by the employee or an associate of the employee, commences or commenced to occupy or use a unit of accommodation intended by the employee or associate, as the case may be, to provide a long-term place of residence for the employee;

(iii)          the employee gives to the employer, before the declaration date, a declaration in a form approved by the Commissioner, in respect of the application of this section in relation to the employee; and

(c)   a percentage (in this subsection called the "attributable percentage") of the taxable value of the fringe benefit in relation to the year of tax is attributable to the subsistence of the lease, licence or housing right referred to in paragraph (1)(a) during the whole or a part of the period commencing 7 days before the relocation day and ending on the earlier or earliest of whichever of the following days is applicable:

(i)            if, during the initial accommodation search period, a contract is or was entered into by the employee or an associate of the employee for the acquisition of, or of the right to occupy or use, a unit of accommodation intended by the employee or associate to provide a long-term place of residence for the employee - the day on which the employee could reasonably be or have been expected to commence, or to have commenced, to occupy or use that unit of accommodation pursuant to that contract;

(ii)           if the initial accommodation search period ends or ended before any contract of a kind referred to in subparagraph (i) of this paragraph is or was entered into by the employee or an associate - the day on which that period ends or ended;

(iii)          if:

(A)  the unit of accommodation that was the employee's former usual place of residence was a dwelling in which the employee, or an associate of the employee held a relevant proprietary interest;

(B)  within 6 months after the relocation day, a contract for the sale of that relevant proprietary interest is or was entered into; and

(C)  the efforts referred to in paragraph (1)(d), and the efforts of that kind that continue or continued to be made during the initial accommodation search period are, or were, efforts to acquire a relevant proprietary interest in a unit of accommodation, being a dwelling;

the day occurring 12 months after the relocation day;

(iv)          except in a case where subparagraph (iii) applies - the day occurring 6 months after the relocation day;

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 the attributable percentage.

In summary, the combined effect of subsection 61C(1), paragraph 61C(3)(a) and paragraph 61C(3)(b) is that paragraph 61C(3)(c) will operate to reduce the taxable value of the fringe benefit if several conditions are satisfied.

Does paragraph 61C(1)(d) apply?

The unit of accommodation is near the employee's new place of employment interstate and the employee has made reasonable efforts to acquire a long-term place of residence interstate. Therefore, paragraph 61C(1)(d) applies and subsection 61C(3)(a) of the FBTAA is satisfied.

Did the employee give the employer a declaration before the declaration date?

The first circumstance under paragraph 61C(3)(b)(11) does not apply, because the employee did not enter a contract to occupy a long-term place of residence within 4 months after relocating.

However, this condition will be satisfied, if the employee provides a declaration in a from approved by the Commissioner, in respect of the application of this section before the declaration date. As the employee provided a letter to his employer detailing the efforts, he has made to find long term. Subparagraph 61C(3)(b)(iii) of the FBTAA is satisfied.

As the employee has provided the declaration, all conditions in subsection 61C, paragraph 61C(3)A and paragraph 61C(3)(b) have been satisfied.

Therefore, paragraph 61(3) (c) may operate to reduce the taxable value of the relevant fringe benefit.

The general effect of paragraph 61C(3)(c) can be summarised (with simplifications that are appropriate under the circumstances) to allow for a reduction in the taxable value of fringe benefits which are attributable to the subsistence of a lease, licence, or housing right for all or part of a period commencing 7 days before the relocation day and ending on the earlier or earliest of whichever of the following days is applicable:

If a contract was entered into by the employee (or associate) to acquire a long-term place of residence during the initial accommodation search period, the day on which the employee could reasonably be expected to commence to occupy that accommodation

'Initial accommodation search period" is defined in subsection 61C(5), as the period commencing and ending when the 'sustained reasonable efforts' required by paragraph (1)(d) commenced and ended. This period, applied to the employee's circumstances, commenced on XX January 20XX, and concluded when the contract was entered into for the acquisition of the property interstate. Therefore, this provision potentially applies to the employees' circumstances, because a contract was entered into during the 'initial search period.'

The employee entered into a contract to obtain long-term accommodation interstate on XX June 20XX. As the employee signed a contract to build long-term accommodation during the initial search period, the reduction ends on the day you could have reasonably expected to move into the accommodation. In your case, you moved into the accommodation on X February 20XX as this was when the accommodation was built. Under these circumstances, it would not be reasonable to expect the employee to enter the residence earlier than this date, as the accommodation was under construction. Therefore, the relevant date is X February 20XX.

If the initial accommodation search period ended before any such contract was entered into, the day on which that period ended

This circumstance does not apply, because the initial accommodation search period did not end before the date on which the contract was entered into.

If the employee's former usual place of residence was sold within 6 months after the relocation day, and the 'sustained reasonable efforts' required by paragraph 61C(1)(d) continued to be made during the initial accommodation search period, a day occurring 12 months after the relocation day

This circumstance does not apply to your circumstances, because the employee did not own a property in their usual place of residence to sell.

If condition 3 above does not apply (corresponding to sub-paragraph 61C(1)(d)(iii)), then the day occurring 6 months after the relocation day

As the employee into a contract to build long-term accommodation on XX June 20XX, during the initial accommodation search period, this meets the requirements in sub-paragraph 61C(3)(c)(i), this provision does not apply to your circumstances.

Conclusion

Therefore, you are eligible for a reduction in the taxable value for the reimbursement of rent expenses incurred by the employee, for the period commencing on XX January 20XX and concluding on X February 20XX.