ATO ID 2011/59: Housing fringe benefits: house damaged in natural disaster
Date of decision: 31 May 2011
Year of income: Year ended 31st March 2012
Business line: Superannuation and Employer Obligations

Issue
Where a house has been substantially damaged by a natural disaster but remains habitable, can the property be deemed to be a different unit of accommodation in accordance with subsection 26(5) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision
Yes. Where a house has been materially altered by a natural disaster it can be deemed to be a different unit of accommodation after the natural disaster in accordance with subsection 26(5) of the FBTAA.

Facts
During an FBT year an employee is provided with a housing fringe benefit, as defined by subsection 136(1) of the FBTAA, by their employer. The housing fringe benefit is provided to the employee during the FBT year in respect of a two-storey house. The two-story house is a unit of accommodation as defined in subsection 136(1) of the FBTAA. Part-way through the FBT year the ground level of the house is substantially damaged by a flood. Only the upper level of the house remains habitable for the balance of the FBT year. After the date of the flood the market value of the right to occupy the house has decreased by 10% or more.

Reasons for decision
Summary: Subsection 26(5) of the FBTAA applies where there has been a material alteration to a unit of accommodation that has the effect of substantially altering (that is, by 10% or more) the market value of the right to occupy the unit of accommodation. Where this occurs subsection 26(5) of the FBTAA deems the unit of accommodation to be treated as a 'new' unit of accommodation. There is deemed to be a new housing right granted in the same circumstances as the original housing right and the value of the right to occupy the unit of accommodation is from the date of the change, re-established by reference to the adjusted market value of that right. Subsection 26(6) of the FBTAA states, for the purposes of subsection 26(5) of the FBTAA, a 'material alteration' to a unit of accommodation includes additions or improvements or other work carried out, any damage, or any addition of facilities or removal of facilities from the unit of accommodation. For the purposes of subsection 26(5) of the FBTAA, the flood damage to the ground level of the two-storey house is a material alteration to the unit of accommodation. Further, the flood damage has substantially reduced the market value of the right to occupy the unit of accommodation by 10% or more and as such subsection 26(5) of the FBTAA applies. Accordingly, where a house has been materially altered by a natural disaster it can be deemed to be a different unit of accommodation after the natural disaster, in accordance with subsection 26(5) of the FBTAA.

Legislative references: Fringe Benefits Tax Assessment Act 1986 subsection 26(5) subsection 26(6) subsection 136(1)
Subject references: Fringe benefits tax Housing fringe benefits FBT accommodation FBT dwellings FBT unit of accommodation Non remote housing fringe benefits