ATO Interpretative Decision
ATO ID 2010/183
Fringe Benefits Tax
Fringe benefits tax: exempt benefits - remote area housing benefits - new novated lease arrangementFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Whether the provision of housing benefits in a remote area by the employer to an employee under a new novated lease arrangement, when the previous arrangement was exempt from fringe benefits tax, will invoke the application of subparagraph 58ZC(2)(e)(ii) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
Decision
No, the recipient's overall housing right under the new arrangement was not granted to an employee under an arrangement for the purpose of obtaining the benefit of section 58ZC of the FBTAA. The arrangement was implemented to enable the employer to provide the benefit of housing to its employee as an ordinary business requirement of the employer but in a manner which limits the employer's rental obligations if the employee ceases employment.
Facts
An employer has a workplace located in a remote area as described in Practice Statement Law Administration PS LA 2000/6.
It is customary for employers in the employer's industry to provide subsidised residential accommodation for their employees.
Under the former arrangement the employer leased a residential property located in a remote area from the owner of the property. The employer provided the employee with a lease or licence to occupy the property which was a remote area housing benefit and was exempt from fringe benefits tax under section 58ZC of the FBTAA.
The lease between the employer and the owner of the property expired and a new lease was entered into in which the employee occupant leased the house from the owner. The new lease was immediately novated under a tripartite agreement between the owner, employee and the employer, thereby shifting the various rights and obligations, including the obligation to make the rental payments, from the employee to the employer.
In the event of a termination of the employment of the employee, the novation will be extinguished and the underlying lease between the employee and owner will be reinstated.
In other words, the novation provides for the transferring of contractual obligations associated with rental lease agreements from the employer to the employee who occupies the premises, should the employment cease.
Both the former and the new arrangements are covered by an 'Effective SSA' as described in Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements.
Reasons for Decision
When an employer provides a housing benefit to its employees in a remote area and the requirements of section 58ZC of the FBTAA are satisfied, the housing benefit is a remote area housing benefit which is an exempt benefit.
Subparagraph 58ZC(2)(e)(ii) of the FBTAA provides conditions which if satisfied will deny the exemption otherwise available under section 58ZC of the FBTAA. Subparagraph 58ZC(2)(e)(ii) provides that:
- (e)
- the recipients overall housing right was not granted to the recipient under:
- (i)
- ....
- (ii)
- 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.
Recipients overall housing right, arrangement and housing right are defined in subsection 136(1) of the FBTAA:
recipients overall housing right, in relation to a housing fringe benefit in relation to a year of tax, means the housing right to which the fringe benefit relates, including that housing right as it subsisted, or will subsist, outside the year of tax.
arrangement means:
housing right, in relation to a person, means 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.
Under subparagraph 58CZ(2)(e)(ii) of the FBTAA, the granting of the recipients overall housing right under an arrangement refers to the granting of the lease or licence to the employee to use the house or unit of accommodation under an arrangement.
Subparagraph 58ZC(2)(e)(ii) of the FBTAA requires that the parties to the arrangement enter into the arrangement for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of the section.
In Newton v. Federal Commissioner of Taxation (1958) 98 CLR 1; (1958) 11 ATD 442; (1958) 7 AITR 298, the Privy Council examined the meaning of the word purpose.
Lord Denning said at page number CLR 8; ATD 445; AITR 304,
The word "purpose" means, not motive, but the effect which is sought to achieve - the end in view.
Lord Denning also said (at the same page),
In order to bring an arrangement within the section, you must be able to predicate by looking at the overt acts by which it was implemented that it was implemented in that particular way so as to avoid tax. If you cannot so predicate, but have to acknowledge that the transactions are capable of explanation by reference to ordinary business or family dealing, without necessarily being labelled as a means to avoid tax, then the arrangement does not come within the section.
Under the former arrangement the employer was exempt from fringe benefits tax on the housing benefit under section 58ZC of the FBTAA.
Under the new arrangement which provides or grants the recipient's overall housing right, the arrangement is entered into by each of the parties for the purpose of enabling the employer to continue to provide the benefit of housing to its employee whilst the employee remains currently employed. The benefit was previously fully exempt so that the employer does not gain a taxation advantage in moving to the current arrangement.
There are no overt acts by which one could predicate that the arrangement has been implemented by any of the parties for the purpose of allowing the employer to enjoy the benefits of the tax exemption. The arrangement can be explained as being one of ordinary business dealings as is customary in the employer's industry.
Accordingly, the recipient's overall housing right was not granted to an employee under an arrangement described in subparagraph 58ZC(2)(e)(ii) of the FBTAA. Subparagraph 58ZC(2)(e)(ii) is not satisfied.
Amendment History
| Date of Amendment | Part | Comment |
|---|---|---|
| 27 May 2016 | Facts, Reason for Decision | Minor punctuation amendments |
Year of income: Year ended 31 March 2011
Legislative References:
Income Tax Assessment Act 1936
section 260
section 58ZC
subparagraph 58ZC(2)(e)(ii)
subsection 136(1)
Case References:
Newton v Federal Commissioner of Taxation
(1958) 98 CLR 1
(1958) 11 ATD 442
(1958) 7 AITR 298
Related Public Rulings (including Determinations)
Taxation Ruling TR 2001/10
ATO ID 2010/182
Other References:
Practice Statement Law Administration PS LA 2000/6
Keywords
Housing fringe benefits
FBT exempt housing benefit
Remote area housing fringe benefits
ISSN: 1445-2782
| Date: | Version: | |
| 28 September 2010 | Original statement | |
| You are here | 27 May 2016 | Updated statement |