Edited version of private advice

Authorisation Number: 1052235943550

Date of advice: 15 April 2024

Ruling

Subject: FBT- taxable value of an in-house period residual benefit

Question 1

Is the benefit to be provided an in-house residual fringe benefit under section 45 and subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Is the taxable value of the benefit determined on the basis that it is an in-house period residual fringe benefit under section 149 of the FBTAA?

Answer

Yes

Question 3

Is the taxable value of the benefit in the tax year when the lease is entered into nil under section 49 of the FBTAA?

Answer

Yes

Question 4

Is the taxable value of the benefit in each subsequent tax year nil?

Answer

Yes

Question 5

Is the fringe benefit provided non-assessable, non-exempt income for the purposes of section 23L of the Income Tax Assessment Act 1936?

Answer

Yes

This ruling applies for the following periods:

FBT year ending 31 March 2025

FBT year ending 31 March 2026

FBT year ending 31 March 2027

FBT year ending 31 March 2028

The scheme commenced on:

1 April 2024

Relevant facts and circumstances

'The Group' carries on property related business activities (such as property investment, property development and ownership, and operation of hotels and serviced apartments).

The Group is considering offering certain employees the opportunity to acquire properties in developments undertaken by the Group. The employee (or a related entity) would be allowed to acquire a property below market value. The property would be provided under leasehold not freehold title.

In all other respects, the contract will be on the same terms as a sale to a member of the public for a property in the same development.

The employee will be required to obtain funding from an independent source.

The benefit will not be provided under a salary packaging arrangement.

The employee will not use the land acquired as his or her usual place of residence.

Reasons for Decision

Question 1

Is the benefit to be provided an in-house residual fringe benefit under section 45 and subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

As the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive) of the FBTAA, the taxable value of the benefit will be determined on the basis that it is a residual benefit, specifically, an in-house residual benefit pursuant to section 45 and subsection 136(1) of the FBTAA..

Detailed reasoning

Housing fringe benefit

Section 25 of the FBTAA provides that a "housing fringe benefit" must be a "housing right" granted to a person.

The Act defines a "housing right" to mean a lease or licence granted to a person to occupy a unit of accommodation, insofar as that lease or licence subsists when the unit of accommodation is the person's usual place of residence.

As any land acquired by way of a lease will not be used as the employee's usual place of residence, the benefit is not a housing fringe benefit.

Property fringe benefit

A "property fringe benefit" is defined in the Act as a fringe benefit that is a "property benefit".

Section 40 of the FBTAA provides that a property benefit will arise:

Where, at a particular time, a person (in this section referred to as the provider) provides property to another person (in this section referred to as the recipient), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time.

Subsection 136(1) of the FBTAA provides the following definitions which are relevant to property benefits:

'property' means:

(a) intangible property; and

(b) tangible property.

'tangible property' means goods and includes:

(a) animals, including fish; and

(b) gas and electricity.

'intangible property' means:

(a) real property;

(b) a chose in action; and

(c) any other kind of property other than tangible property;

but does not include:

(a) a right arising under a contract of insurance; or

(b) a lease or licence in respect of real property or tangible property.

As the property would be provided under leasehold not freehold title, despite Title passing to the employee, the existence of the lease over the real property means the benefit cannot be a property benefit.

It follows that the benefit, being a leasehold interest in land, is not a property fringe benefit.

Residual Fringe Benefit

Section 45 provides that a benefit will be a residual benefit '... if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive)'.

As the benefit to be provided is not any of the following and is not a housing benefit or property benefit, it is properly characterised as a residual benefit (in accordance with section 45):

i.  a car fringe benefit (Division 2 of Part III);

ii. a debt waiver fringe benefit (Division 3 of Part III);

iii.               a loan fringe benefit (Division 4 of Part III);

iv.               an expense payment fringe benefit ((Division 5 of Part III)

v.                a living-away-from-home allowance fringe benefit (Division 7 of Part III);

vi.               a board fringe benefit (Division 9 of Part III);

vii.              a tax-exempt body entertainment fringe benefit (Division 10 of Part III); and

viii.             a car parking fringe benefit (Division 10A of Part III).

In-house residual fringe benefit

A residual benefit can be categorised as either an external residual fringe benefit or an in-house residual fringe benefit.

An in-house residual fringe benefit arises where the provider of the residual fringe benefit is the employer or an associate of the employer, and at or about the comparison time that employer (or associate) must carry on a business consisting of, or including, the provision of identical or similar benefits principally to outsiders.

In the current case, the Group carries on property related business activities. The employer is one of the Group's companies. The provider of the residual fringe benefit is the employer, and it is considered that the provider carries on a business that consists of the provision of identical or similar property principally to outsiders. As such, the benefit provided is an in-house residual fringe benefit under paragraph (a) of the definition of "in-house residual fringe benefit" in subsection 136(1) of the FBTAA.

Question 2

Is the taxable value of the benefit determined on the basis that it is an in-house period residual fringe benefit?

Summary

Yes, the taxable value of the benefit is determined on the basis that it is an in-house period residual fringe benefit.

Detailed reasoning

The distinction between a 'period' and a 'non-period' residual fringe benefit is determined by the definition of 'period residual fringe benefit' in subsection 136(1) and section 149 of the FBTAA.

A 'period residual fringe benefit' is defined in subsection 136(1) as a residual fringe benefit that is provided during a period. Under subsection 149(1), a benefit is taken to be provided during a period if, and only if, it is provided and subsists during a period of more than one day and is not deemed to be provided at a particular time or on a particular day. The effect of this is that, generally, where a residual fringe benefit is provided and subsists for more than one day, it is a period residual fringe benefit.

A benefit consisting of a lease or licence in respect of property is specifically deemed to be provided during the period when the lease or licence subsists (section 149 of the FBTAA).

Consequently, the benefit is an in-house period residual fringe benefit.

Question 3

Is the taxable value of the benefit in the FBT year when the lease is entered into nil under section 49 of the FBTAA?

Summary

Yes, the taxable value of the benefit in the FBT year when the lease is entered into is nil.

Detailed reasoning

Section 49 of the FBTAA provides:

Subject to this Part, the taxable value of an in-house period residual fringe benefit in relation to a year of tax is:

(a) if neither paragraph (aa) nor (ab) applies and, at or about the comparison time, identical overall benefits were provided by the provider:

(i) in the ordinary course of business to members of the public under an arm ' s length transaction or arm's length transactions; and

(ii) in similar circumstances and subject to identical terms and conditions (other than as to price) as those that applied in relation to the provision of the recipients overall benefit;

an amount equal to 75% of the lowest amount paid or payable by any such member of the public in respect of the current identical benefit in relation to an identical overall benefit so provided; or

(b) in any other case - an amount equal to 75% of the notional value of the recipients current benefit;

reduced by the amount of the recipients contribution insofar as it relates to the recipients current benefit.

Calculation of the taxable value pursuant to paragraph (a) will occur where the provider of the residual benefit is the employer or associate, and the employer (or associate) carries on a business consisting of the provision of identical or similar benefits principally to outsiders.

Identical benefits are considered the same in all respects except for minor or insignificant differences. Where this is the case, the taxable value for these benefits is determined as 75% of the lowest price that the employer charges the public for identical benefits at the time. This value is then further reduced by any amount paid by the employee for the benefit.

Calculation of the taxable value pursuant to paragraph (b) is required in cases where the employer does not provide identical benefits to the public. The taxable value is calculated as 75% of the notional value - the amount the employee would reasonably be expected to pay to obtain the same benefit in a typical arm's length transaction. This value is then reduced by any contribution made by the employee.

'Notional value' is defined in section 136 to mean the amount that a person could be reasonably expected to be required to pay for the benefit from the provider under an arm's length agreement (market value).

Under either paragraph (a) or (b) of section 49 of the FBTAA, the recipient's contribution will equal or exceed the taxable value of the benefit, resulting in a taxable value of the in-house period residual benefit of nil.

Question 4

Is the taxable value of the benefit in each subsequent FBT year nil?

Summary

Yes, the taxable value of the benefit in each subsequent FBT year will be nil.

Question 5

Is the fringe benefit provided non-assessable non-exempt income for the purposes of section 23L of the ITAA 1936?

Summary

The benefit will be considered non-assessable non-exempt income for the purposes of section 23L of the ITAA 1936, because the benefit is a fringe benefit.