Edited version of private advice

Authorisation Number: 5010061166190

Date of advice: 10 September 2019

Ruling

Subject: Exemptions under section 58B and section 58C of the Fringe Benefits Tax Assessment Act 1986

Question 1

Would the employee's removal costs, if reimbursed by the employer, be exempt from FBT under section 58B of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes.

Question 2

Would the employee's specified relocation costs, if reimbursed by the employer, be exempt from FBT under section 58C of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes, except for the stamp duty expense on purchase, as the employee has not provided documentary evidence of the expense to the employer.

This ruling applies for the following period:

FBT year 1 April 2019 to 31 March 2020

The scheme commences on:

1 April 2019

Relevant facts and circumstances

·   An employee commenced work with the employer in 200X and worked at a regional office to early 2018.

·   Up until 2015 the employee had occupied a managerial position responsible for the region. Internal restructuring within the employer in 2015 resulted in that position being abolished and a new position being created. The confirmation letter from the employer however did not mention any specific location for the role.

·   The employee was a successful applicant for the position and officially commenced in the new role on mid-late 2015.

·   The employee continued to work from the regional office for the next two years and three months. Over time it became apparent that the office location was not ideal in terms of fulfilling the role across the entire region so in 2017 the employee and their manager verbally agreed to relocation of the position to another regional centre some distance away.

·   On October 2017 the employee entered into a contract to purchase a new property near the new regional centre (the day the contract was signed).

·   On December 2017 the employee entered into a contract to sell their former property (the day the contract was signed).

·   On January 2018 the employee relocated to the new office.

·   On January 2018 the employee moved from their old property to their new property.

·   On January 2018 the employee also moved their belongings on the same day as they moved from their old property to their new property.

·   The following is a list of expenses incurred in the purchase and sale of the respective properties for which the employee wishes to be reimbursed (the relocation costs):

·   Stamp duty on purchase

·   Conveyancing (legal) costs on purchase

·   Bank fees on purchase

·   Conveyancing (legal) costs on sale

·   Commission fee to estate agent on sale

·   Advertising costs on sale

·   Mortgage discharge fee on sale

·   The employee also wishes to be reimbursed for the Removalist expenses (the removal costs).

·   The expense payment benefits that will be provided by the employer will be provided under an arm's length arrangement, when they are paid.

·   The employee has not been reimbursed for any claims yet. They are all pending until the FBT issues have been resolved.

·   The employee has given all substantiating documentation for the expenditure they incurred to the employer (with the exception however of the stamp duty expense on purchase) before the employer has to lodge an FBT return for the 2020 year, which is the year in which the reimbursements will be made.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 58B

Fringe Benefits Tax Assessment Act 1986 section 58C

Reasons for decision

Summary

Question 1

The employee's removal costs, if reimbursed by the employer, will be exempt from fringe benefits tax (FBT) under section 58B of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Question 2

The employee's specified relocation costs, if reimbursed by the employer, will be exempt from FBT under section 58C of the FBTAA, except for the stamp duty expense on purchase, as the employee has not provided documentary evidence of that expense to the employer.

Detailed reasoning

Question 1

Section 58B of the FBTAA exempts from FBT benefits which meet removal and storage costs incurred by an employee who moves from one locality to another in the course of employment or in order to commence employment. A benefit is only exempt under section 58B if it satisfies a number of conditions.

1.    The underlying benefit provided, whether as an expense payment benefit or a residual benefit, is the "removal or storage of household effects of the employee" (subparagraphs 58B(1)(a)(i) and (ii) of the FBTAA). "Household effects" means tangible property kept primarily for the personal use of family members. The property, which need not be owned by a family member, includes pets, gas and electricity (definition of "tangible property" (subsection 136(1) of the FBTAA). Where household effects are removed or stored, any benefits in respect of transport, packing, unpacking or insurance of those effects in connection with the removal or storage are also eligible for the exemption (subsection 58(2) of the FBTAA).

2.    The removal or storage of the household effects must have been required solely because the employee is required to:

a)    live away from his or her usual place of residence in order to perform employment duties (subparagraph 58B(1)(b)(i) of the FBTAA);

b)    return to his or her usual place of residence at the end of a period during which the employee lived away from that place in order to perform employment duties (subparagraph 58B(1)(b)(ii)); or

c)    change his or her usual place of residence in order to perform employment duties (subparagraph 58B(1)(b)(iii)).

ATO Interpretive Decision 2013/8 provides that the agent requiring the employee to change their usual place of residence in subparagraph 58B(1)(b)(iii) need not be the employer. Instead, it is sufficient if the change in usual place of residence is a practical necessity for the employee in order to effectively perform their employment duties.

3.    Where the employee is required to live away from, or change, his or her usual place of residence in a) and c) above, the removal or storage must be necessary to enable the employee (or family members) to take up residence, or to continue to reside, at the new locality. This requirement would be met where household effects are moved to the new locality at the commencement of the relocated employment or where they are removed from a temporary residence at the new locality to another residence at the new locality. Where the employee is required to return to his or her usual place of residence at the end of a period during which he lived away from that place ((b) above), the removal or storage must be necessary to enable the employee (or family member) to resume residence at the usual place of residence (paragraph 58B(1)(c) of the FBTAA).

4.    Where the employee changes his or her usual place of residence ((c) above), the benefit is only exempt if it is provided under an arm's length arrangement and if the removal or storage occurs within 12 months from the day the employee commences employment at the new locality (paragraph 58B(1)(d) of the FBTAA).

5.    In the case of an expense payment benefit, documentary evidence of the expenditure incurred by the employee must be given to the employer before the date the employer has to furnish a fringe benefit return for the year (paragraph 58B(1)(e) of the FBTAA).

6.    The exemption under section 58B does not apply where the employee is undertaking travel in the course of performing employment duties. The "otherwise deductible" rules may apply where benefits are provided to an employee in such circumstances (sections 24 and 52 of the FBTAA).

Where a benefit satisfies these conditions, it is an exempt benefit.

The circumstances of the employee must then be considered in order to determine whether the employee's removal costs, if reimbursed by the employer, will be exempt under section 58B of the FBTAA.

1.    The underlying benefit provided, as an expense payment benefit provided by the employer, is the removal or storage of household effects of the employee.

2.    The removal or storage of the household effects has been required solely because the employee is required to change their usual place of residence in order to perform employment duties. The change in usual place of residence has been agreed upon as a practical necessity for the employee in order to effectively perform their employment duties (ATO Interpretive Decision 2013/8).

3.    As the employee is required to change their usual place of residence, the removal or storage enables the employee to take up residence at the new locality. This is because the household effects were moved to the new locality at the commencement of the relocated employment.

4.    The expense payment benefit provided by the employer will be provided under an arm's length arrangement and the removal or storage occurred within 12 months from the day the employee commences employment at the new locality. In this regard, the removal of the employee's belongings occurred on January 2018 and the employee commenced employment at the new locality on January 2018.

5.    Documentary evidence of the expenditure incurred by the employee will be given to the employer before the employer has to furnish a fringe benefits return for the relevant year.

6.    The employee is not undertaking travel in the course of performing employment duties.

All the conditions for the exemption under section 58B of the FBTAA have been satisfied under this case for the employee's removal costs, such that an exempt fringe benefit arises in this case.

Question 2

Section 58C of the FBTAA exempts from FBT benefits which meet incidental costs incurred in the sale or purchase of a home by an employee who changes their usual place of residence in the course of employment or in order to commence employment.

This exemption does not apply unless the preconditions under subsection 58C(1) of the FBTAA are satisfied:

1.    The employee must have owned a home.

2.    The employee must sell that home solely because the employee is required to change their usual place of residence in order to perform the employment duties.

3.    At the time the employer notified the employee of the required change of location, the employee occupied the home as the usual place of residence.

Benefits relating to sale of a home (subsection 58C(2) of the FBTAA)

Benefits relating to the costs of selling a home owned by an employee at the time the employee is notified by the employer that the employee is required to work at a new locality may be exempt from FBT under subsection 58C(2) of the FBTAA. In order to be exempt, a benefit must satisfy a number of tests.

1.    The benefit must be either an expense payment benefit or residual benefit where the costs incurred by the employee are incidental to the sale of the property.

Incidental to the sale of property

Section 141A of the FBTAA lists the type of costs which will be taken to be incidental to the sale or purchase of property. Unless an expense payment benefit or a residual benefit relates to such matters, it will not be exempt under section 58C of the FBTAA.

For the purposes of an expense payment benefit, costs will be taken as incidental to the sale or purchase of property only if they are in respect of the following matters:

·  stamp duty,

·  advertising,

·  legal services,

·  agent's services,

·  discharge of a mortgage,

·  expenses of borrowing,

·  any similar matter,

2.    The employee must have entered into a contract for the sale of the home within two years after the "new employment day", i.e. the day on which the employee commenced to perform the duties of that employment at the employee's new place of employment.

3.    In the case of an expense payment benefit, documentary evidence of the expenditure incurred by the employee must be supplied to the employer before the date on which the employer has to submit the fringe benefits tax return.

4.    The benefit must be provided under an arm's length arrangement.

A benefit which satisfies these tests is an exempt benefit under subsection 58C(2) of the FBTAA.

Benefits relating to purchase of property (subsection 58C(3) of the FBTAA)

Benefits relating to the costs of buying a property may be exempt under subsection 58C(3) of the FBTAA where the following tests are satisfied, which are broadly and relevantly as follows:

1.    The employee must acquire a home.

2.    The employee's home must be acquired solely because the employee is required to change the usual place of residence in order to perform the employment duties at the new place of employment.

3.    The contract for the acquisition of the home must be entered into by the employee within four years from the day the employee commences duties at the new locality.

4.    If, on the day of entering into the contract to acquire the new home, the employee still owns their existing home and

·   If that existing home were sold within two years of the new employment day and

·   If a benefit in respect of incidental expenditure of a kind which is referred to in subsection 58C(2) of the FBTAA were provided in relation to that existing home,

the benefit would be an exempt benefit under that section, then the condition is that no more than two years must have elapsed from the new employment day.

5.    Immediately after the home is acquired, the employee must occupy the home as his or her usual place of residence.

6.    The benefit provided by the employer must be an expense payment benefit or a residual benefit that relevantly, meets costs incidental to the acquisition of the property.

7.    In the case of an expense payment benefit, documentary evidence of expenditure incurred by the employee must be supplied to the employer before the date on which the employer has to submit the fringe benefits tax return for the relevant year.

8.    The benefit must be provided under an arm's length arrangement.

A benefit which satisfies these tests is an exempt benefit.

Would the employee's specified relocation costs, if reimbursed by the employer, be exempt from FBT under section 58C of the FBTAA?

Are the preconditions under subsection 58C(1) of the FBTAA satisfied?

The circumstances must be considered in order to determine whether the preconditions under subsection 58C(1) of the FBTAA are satisfied.

1.    The employee owned a home at their former place of residence;

2.    The employee had to sell that home solely because the employee is required to change their usual place of residence in order to perform the employment duties. The change in usual place of residence has been agreed upon as a practical necessity for the employee in order to effectively perform their employment duties (ATO Interpretive Decision 2013/8).

3.    At the time the employer notified the employee of the required change of location, the employee occupied the home as the usual place of residence.

The preconditions under subsection 58C(1) of the FBTAA are therefore satisfied, so that the exemptions under section 58C of the FBTAA for benefits relating to the payment of incidental costs associated with the sale of the employee's former home as well as the employee's acquisition of a new home as a result of the employee's relocation can now be considered.

Are the benefits relating to the sale of the employee's former home exempt from FBT under subsection 58C(2) of the FBTAA?

The circumstances must be considered in order to determine whether the benefits relating to the sale of the employee's former home will be exempt from FBT under subsection 58C(2) of the FBTAA.

1.    The benefit will be an expense payment benefit (via reimbursement) where the specified costs incurred by the employee are incidental to the sale of the property (as detailed under section 141A of the FBTAA);

2.    The employee entered into a contract for the sale of the home on December 2017, within two years after the "new employment day", i.e. January 2018, the day on which the employee commenced to perform the duties of that employment at the employee's new place of employment. So long as a contract for sale is entered into no later than two years after the first day on which the employee commenced employment at the new place of employment, the concession is available.

3.    While the employment contract was entered into in 2015, at that time the contract did not have a specified location attached to it. Given that the employee resided in the former location at that time, this would have been considered when the relevant recruitment decision was made. The decision to relocate the position was made after a period of time in the role and therefore we have concluded that the "new employment day" is reflective of the date the employee commenced duties at the new location - being January 2018.

4.    In relation to the issue of timing, the wording of paragraph 58C(2)(aa) of the FBTAA and paragraph 58C(3)(c) of the FBTAA, and in particular through the term 'new employment day', may be considered as providing a time limit within which the sale and purchase may take place.

5.    It was noted in the minutes from the National Tax Liaison Group FBT Sub-committee meeting of February 2002 (FBT NTLG minutes), that concerns had been raised about former paragraph 58C(1)(e) of the FBTAA:

...the employee or associate entered into a contract for the sale of the interest or right within 2 years after the day on which the employee commenced to perform the duties of that employment at the employee's new place of employment...

and that the interpretation of the wording 'after the day on which they commenced to perform the duties of employment' required clarification.

6.    The following response (in part) was provided by the ATO at the meeting:

...In any case the ATO accepted that the paragraph can be read to mean that so long as a contract for sale is entered into no later than two years after the first day on which the employee commenced employment, the concession would be available. That really means that the contract for sale can be entered into after the new employment contract is signed and before the commencement of the new employment...

...The ATO agrees that the law merely has a 'sunset' provision for the last date on which the contract can be entered into. It cannot be said that a contract entered into prior to the commencement of employment is not made within two years from the commencement of the employment.

7.    Documentary evidence of the expenditure incurred by the employee will be supplied to the employer before the date on which the employer has to submit the FBT return.

8.    The benefit will be provided under an arm's length arrangement.

The benefits relating to the sale of the employee's former home will therefore be an exempt benefit under subsection 58C(2) of the FBTAA.

Are the benefits relating to the purchase of the employee's new home exempt from FBT under subsection 58C(3) of the FBTAA?

The circumstances must be considered in order to determine whether the benefits relating to the purchase of the employee's new home will be exempt from FBT under subsection 58C(3) of the FBTAA.

1.    The employee has purchased a home in the new location.

2.    The employee's home has been purchased solely because the employee is required to change the usual place of residence in order to perform the employment duties at the new place of employment. The change in usual place of residence has been agreed upon as a practical necessity for the employee in order to effectively perform their employment duties (ATO Interpretive Decision 2013/8).

3.    As the employee entered into a contract to purchase the new home on October 2017, before the employee sold their former home on 15 December 2017 and

·   the former home was sold within two years of the new employment day and

·   the employer will provide a benefit in respect of incidental expenditure of a kind referred to in subsection 58C(2) of the FBTAA in relation to that former home, and

the benefit will be an exempt benefit under subsection 58C(2) of the FBTAA, the contract for the purchase of the new home has been entered into by the employee within two years from the day the employee commences duties at the new locality.

4.    Immediately after the home is purchased, the employee has occupied the home as their usual place of residence.

5.    The benefit that will be provided by the employer will be an expense payment benefit that meets costs incidental to the purchase of the property.

6.    With the exception of stamp duty, documentary evidence of expenditure incurred by the employee will be supplied to the employer before the date on which the employer has to submit the FBT return for the relevant year.

7.    The benefit will be provided under an arm's length arrangement.

The benefits relating to the purchase of the employee's new home (with the exception of stamp duty, as no documentary evidence of that expense has been provided by the employee to the employer) will therefore be an exempt benefit under subsection 58C(3) of the FBTAA.