Edited version of private advice

Authorisation Number: 1052172666325

Date of advice: 24 September 2023

Ruling

Subject: Remote area housing benefits

Question 1

Will the provision of housing to the employee constitute a housing benefit under section 25 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Will the provision of housing to the employee constitute an exempt remote area housing benefit under section 58ZC of the FBTAA?

Answer

Yes

This ruling applies for the following periods:

Fringe Benefits Tax (FBT) year ending 31 March 2024

FBT year ending 31 March 2025

The scheme commenced on:

1 April 2023

Relevant facts and circumstances

Entity A (the employer) is the trustee for the Trust.

The Employer commenced carrying on a primary production business on 1 July 20XX.

The legal owner of this property is the Employee. The property was originally purchased by his parents and transferred to the Employee by gift in 20XX.

The Employer has been using the property since 1 July 20XX and it is intended that the Employer will use the land indefinitely.

There is no formal lease agreement in place between the owner of the land and the Employer and accordingly the arrangement between the owner and the Employer could be described as a "lease at will".

The block makes up approximately X% of the land used by the Employer (including land leased from third parties). The employer has constructed a significant number of key structural improvements on the property including the workshop, the main machinery shed, storage shed, chemical storage etc.

All expenses associated with the property are paid by the Employer including rates, insurance, repairs, various structural improvements etc.

The Employee is employed as the farm manager of the property. He is actively involved on a full-time basis in both the management of the business carried on by the Employer, and its operations including operating a full range of machinery owned by the Employer. The Employee is paid a competitive salary by the Employer for the work that he does for the Employer.

There is insufficient housing available in the area for the employees to reside in. It is therefore quite common for employees to be provided with housing, due to the nature and conditions of their employment. The Employer has a policy to provide housing or accommodation to all full-time employees.

Currently there is temporary accommodation available on the property that the Employee and his family reside in.

The temporary accommodation is a 2.5 bedroomed (two bedrooms and a small office) cottage in an average state of repair that is located on the property. It is habitable but not particularly suitable as long-term accommodation for a family. It is generally used to accommodate backpackers that work on the property for short periods and will be returned to that use when the Employee and his family move out.

There is a need for further accommodation on the property. The Employer is currently in the process of constructing a dwelling on the land with the intention of using the dwelling to provide accommodation to the Employee and his family.

The house that is being constructed on the property is replacing an original house on the property. The original house had significant structural problems with its foundations as confirmed by builders and structural engineers. Those professionals indicated that the cost of effecting repairs to the foundations would be substantial, and they could not guarantee that the foundations would be stable after the repairs were completed. Accordingly, the only option available was to demolish the original house and replace it with the house that is currently being constructed.

The features of the new house being constructed on the land are comparable to the features of existing houses that are provided to farm managers working on other farms in the district. It is expected that construction of the house will be completed to a stage suitable to move in quite soon (within 6 weeks).

It is not expected that there will be a formal lease in place, but it is expected that the Employee as manager with his family will be the initial residents of the dwelling.

The accommodation will be the Employee's usual place of residence.

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 58ZC(1)

Fringe Benefits Tax Assessment Act 1986 subsection 58ZC(2)

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 paragraph 140(1)(a)

Fringe Benefits Tax Assessment Act 1986 paragraph 140(1)(b)

Reasons for decision

Question 1

Summary

Yes, the provision of housing to the Employee will constitute a housing benefit under section 25 of the FBTAA.

Detailed Reasoning

A 'housing benefit' is defined in subsection 136(1) to mean a benefit referred to in section 25. Section 25 defines that benefit as where a person grants a housing right to another person.

A 'housing right' in relation to a person is defined in subsection 136(1) to mean a lease or licence granted to the person to occupy or use a unit of accommodation, insofar as that lease or licence subsists at a time when the unit of accommodation is the person's usual place of residence.

Accordingly, a housing right arises where a lease or licence granted to a person to occupy or use a unit of accommodation subsists at a time when the unit of accommodation is the person's usual place of residence.

A 'unit of accommodation' is defined in subsection 136(1) to include (amongst other things) accommodation in a house, flat or home unit, or any living quarters.

Application to these circumstances

The legal owner of the property is the Employee. The Employer has used the property since 1 July 20XX, and it is intended that they will use the land indefinitely. The Employer has constructed a significant number of key structural improvements; and pays for all expenses associated with the property. In the current case, there is no formal lease agreement in place; the Employer occupies the property pursuant to an informal lease arrangement with the owner, that is described as a "lease at will".

As per the discussion in ATO Interpretative Decision ATO ID 2009/156 Income Tax, Capital allowances: quasi-ownership right over land - meaning of lease (ATO ID 2009/156), in determining whether a lease has been granted, the Courts will look at the substance of the transaction and the conduct of the parties to characterise the rights that have been created. It is considered that in the current case the arrangement and conduct of the parties points to an intention to confer a right of exclusive possession, and therefore a lease has been created.

As lessee of the property, the Employer provides accommodation to its employees. The Employer currently provides the Employee and his family with residential accommodation on the property. The Employee is the farm manager, and the house is used as the Employee's usual place of residence. Notwithstanding that there are no formal agreements in place, in respect of the provision of accommodation to employees, it is considered that a housing benefit is provided to the Employee.

The accommodation currently used is considered to be temporary as it is habitable, but not particularly suitable as long-term accommodation for a family. It was necessary to demolish the original house on the property; the Employer intends to construct a new house that is comparable to existing houses provided to other farm managers in the district. The new dwelling will be provided to the Employee and his family, as their usual place of residence. It is accepted that a housing benefit will also be provided in respect of the new dwelling.

The requirements of section 25 are met. The criteria in subsection 58ZC(2) will need to be satisfied for the benefit to be a remote area housing benefit.

Question 2

Summary

Yes, the provision of housing to the Employee will constitute an exempt remote area housing benefit under section 58ZC of the FBTAA.

Detailed Reasoning

Under subsection 58ZC(1) of the FBTAA a housing benefit that is a 'remote area housing benefit' is an exempt benefit.

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)          during the whole of the tenancy period, the unit of accommodation was located in a State or internal Territory and was not at a location in, or adjacent to, an eligible urban area; and

(b)          during the whole of the tenancy period, the recipient was a current employee of the employer and the usual place of employment of the recipient was not at a location in, or adjacent to, an eligible urban area; and

(c)           (Repealed by No 77 of 2005)

(d)          it would be concluded that it was necessary for the employer, during the year of tax, to provide, or to arrange for the provision of, residential accommodation for an Employee of the Employer because:

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

(ii)           there was not, at or near the place or places at which the Employee of the Employer were employed, sufficient suitable residential accommodation for those (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 recipient was employed during the tenancy period to provide residential accommodation for their Employees free of charge or for a rent or other consideration that is less than the market value of the right to occupy or use the accommodation concerned; and

(e)          the recipients overall housing right was not granted to the recipient under:

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

(ii)           or 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 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 provision of the accommodation and the employment of the Employee, it is necessary to consider the circumstances in which it has been provided.

Based on the facts, the Employer provides housing or accommodation to all full-time employees, as there is insufficient accommodation available at or near where the employees are employed (other than the residential accommodation provided by or on behalf of the Employer). There is need for further suitable accommodation. The Employer is currently building a new dwelling (to replace a house that has been demolished).

The Employee is employed full-time as a farm manager by the Employer and is currently provided with temporary housing on the property. The intention is that the new dwelling will provide accommodation for the farm manager, and the temporary accommodation will be used to accommodate backpackers that work on the property for short periods.

It is considered that the connection between the benefit received by the Employee and the Employee's employment is material and sufficient, and not merely causal. If it were not for the Employee's employment, the Employee would not have received the accommodation benefit.

(a) Accommodation must be located in a remote area

The term 'remote area' is not defined in the FBTAA. Instead, the FBTAA has a definition of 'eligible urban area' in section 140. A place is in a remote area if it is not in or adjacent to an eligible urban area.

Subsection 140(1) provides:

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.

The 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, for the purposes of subsection 140(1).

Subsection 140(1) sets out what is an 'eligible urban area' and what is a location that is 'adjacent to an eligible area'.

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 Income Tax Assessment Act 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 area 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 these circumstances

The property is located XX km from XXX. XXX is situated more than 40km from the centre point of an eligible urban area that had population of 14,000 to less than 130,000 (based on the 1981 census) and is not situated in either Zones A or B for income tax purposes. XXX is situated at least 100 km from an urban centre with a 1981 census population of more than 130,000.

In addition, XXX is categorised as a remote area published on the list of remote areas in Australia on the ATO website.

For these reasons, we consider XXX to be a remote area for FBT purposes, in accordance with section 140.

Paragraph 58ZC(1)(a) is satisfied as the accommodation provided will be located XX km from XXX, which is a remote area.

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

The exemption is only available if the benefit is provided to a current employee of the Employer - not a former or future employee - for the whole of the tenancy period. Further, the employees' usual place of employment must not be at a location in or adjacent to an eligible urban area during that period.

Application to these circumstances

The recipient of current and proposed housing is an employee of the Employer. The duties of the Employee are undertaken on the property near XXX, which is not a location in or adjacent to an eligible urban area.

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

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

It must be necessary for the Employer to provide residential accommodation to employees for any of the reasons provided in paragraph 58ZC(2)(d).

From the facts provided, it is accepted that there is not, at or near the place at which the Employee is employed, sufficient suitable residential accommodation other than the accommodation provided. Accordingly, subparagraph 58ZC(2)(d)(ii) of the FBTAA is satisfied.

It must be considered whether the Employer satisfies subparagraph (iii), which provides that it is 'customary' in the employer's industry to provide free or subsidised housing to employees.

Taxation Determination TD 94/97 Fringe benefits tax: what does the phrase 'customary for employers in the industry' mean in relation to the provision of fringe benefits to employees? (TD 94/97) at paragraph 2, provides that a benefit will be accepted as being customary where it is normal or common for employees of that class or job description in that industry to be provided with the same or similar benefits.

Paragraph 2 of TD 94/97 states:

A benefit will be accepted as being customary where it is normal or common for Employees of that class or job description in that industry to be provided with the same or similar benefits. It is not necessary that all or even the majority of Employees in the industry receive the benefit. Where the provision of the benefit is unique, rare or unusual within an industry it would not be accepted as being customary.

The Commissioner does not have a current published list of industries in which it would be considered customary for employers to provide housing assistance.

However, the now withdrawn Taxation Ruling IT 67 Subsidised housing benefits (IT 67) provided examples of classes of employees whose employers would meet this requirement. IT 67 provided guidance on the former section 26AAAB of the Income Tax Assessment Act 1936 which provided concessional treatment for subsidised housing in remote areas for employees where it was customary for employers in the particular industry to provide employees with free or subsidised accommodation.

The examples listed were as follows:

•                     miners

•                     sugar mill

•                     bank

•                     police

•                     prison

•                     school teachers

•                     hospital

•                     farm workers

•                     hotel and motel staff, and

•                     civil engineering workers, e.g. on bridge or dam works.

In defining the employer's industry, the Commissioner will accept categorisation on any recognised industry classification system.

You have advised that the relevant industry in which the employer is operating a business is in primary production.

Historically, it has been customary in the industry for farm workers to provide employees with housing benefits as per IT 67.

Copies of farming industry job advertisements (posted by third parties), where housing is specifically mentioned as a benefit, is evidence that it is normal or common in that industry to offer housing benefits to employees.

Application to these circumstances

It is accepted that it is customary in the industry for employers to provide remote area housing to employers working as farm workers including farm managers and therefore, subparagraph 58ZC(2)(d)(iii) has been satisfied.

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

Under paragraph 58Z(2)(e), 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.

Within subsection 136(1) of the FBTAA, the expression 'non-arm's length arrangement' is defined to mean an arrangement other than an arm's length arrangement. The term 'arm's length arrangement' is not defined in the FBTAA. However subsection 136(1) defines 'arm's length transaction' to mean a transaction where the parties to the transaction are dealing with each other at arm's length in relation to the transaction.

It is noted in ATO Interpretative Decision ATO ID 2005/156 Fringe Benefits Tax Exempt Benefits: remote area-housing - non-arm's length arrangement (ATO ID 2005/156) that the expression 'at arm's length' is defined in The CCH Macquarie Concise Dictionary of Modern Law, 1988, CCH Australia Ltd/ Macquarie Library Pty Ltd, Sydney as meaning that the parties to a transaction are not connected in such a way as to bring into question the ability of one to act independently of the other.

In Granby Pty Ltd v. FCT (1995) 30 ATR 400; 95 ATC 4240, where the expression 'dealing with each other at arm's length' in section 160ZH of the Income Tax Assessment Act 1936 was in question, Lee J said (at ATR 403; ATC 4243):

The expression "dealing with each other at arm's length" involves an analysis of the manner in which the parties to a transaction conducted themselves in forming that transaction. What is asked is whether the parties behaved in the manner in which parties at arm's length would be expected to behave in conducting their affairs. Of course, it is relevant to that enquiry to determine the nature of the relationship between the parties, for if the parties are not parties at arm's length the inference may be drawn that they did not deal with each other at arm's length.

The discussion in ATO ID 2005/156 considers a situation where the employer and employee were not at arm's length however, the employer had a policy of providing free housing to all of its managerial employees working in remote areas. As such, it was considered that the recipient's overall housing right was granted under an arm's length arrangement. Accordingly, as the housing right was not granted under a non-arm's length arrangement, subparagraph 58ZC(2)(e)(i) was satisfied.

Application to these circumstances

Similarly in this case, even though the Employer and the Employee are not at arm's length, the Employer has a history of and a written policy to provide free housing to all of its employees working in remote areas. As such, it is considered that the recipient's current overall housing right has been granted under an arm's length arrangement.

The housing right in respect of the new dwelling will also be granted under an arm's length arrangement.

As the recipient's current housing right was not granted under a non-arm's length arrangement, subparagraph 58ZC(2)(e)(i) of the FBTAA is satisfied. The housing right in respect of the new dwelling will also be granted under a non-arm's length arrangement, and subparagraph 58ZC(2)(e)(i) of the FBTAA will be satisfied.

Conclusion

The Employer has provided the Employee with a housing benefit pursuant to section 25 of the FBTAA. The provision of the new dwelling to the Employee will also constitute a housing benefit.

Each of the conditions for the housing benefits to constitute a 'remote area housing benefit' as set out in subsection 58ZC(2) of the FBTAA are satisfied. Accordingly, the housing benefits provided to the Employee will be exempt remote area housing benefits for the purposes of section 58ZC.