ATO ID 2003/158: Remote area housing: reduction of taxable value - residential property and employee's mortgage loan repayments
Date of decision: 14 January 2003
Year of income: Year ended 31 March 2002
Business line: Private Groups and High Wealth Individuals

Issue
Does the employee's expenditure incurred in making repayments on the employee's residential home loan satisfy the paragraph 142(2C)(c)of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) requirement of being 'recipients expenditure that is incurred wholly to enable the employee to acquire an estate or interest in land on which there is a dwelling'?

Decision
No, because the employee's expenditure is not wholly for that purpose.

Facts
The employee owns land on which there is a house (the property). The employee has a home loan with a bank which is secured by way of mortgage over the property. The loan with the bank was entered into to enable the employee to acquire the property. Under the terms of the loan the employee is required to make regular repayments in order to repay the loan within the loan period. The terms of the loan include that the loan accrues interest and other charges. The interest and charges are added to the loan. The employee makes repayments on the loan which reduces the current (at the repayment date) balance of the loan. The employer reimburses the employee all (or part) of the loan repayment(s). The reimbursement is made with reference to the loan repayment(s), being the expenditure incurred by the employee. The reimbursement(s) is an expense payment fringe benefit as defined in subsection 136(1) of the FBTAA.

Reasons for decision
Summary: Under subsection 60(4) of the FBTAA, an employer is entitled to apply a 50% reduction in the taxable value of certain expense payment fringe benefits when the recipients expenditure is in respect of remote area residential property. Broadly, the subsection discounts by 50% the taxable value of a fringe benefit relating to the provision of assistance to enable an employee to acquire a unit of remote area accommodation (typically, a house in a remote area of Australia). Subsection 60(4) of the FBTAA (and subsection 142(2C) of the FBTAA) was inserted by Taxation Laws Amendment Act (No 4) 1988 . The Explanatory Memorandum to that Act described subsection 60(4) as expanding the (at that time) existing range of section 60 benefits. Subsection 60(2) of the FBTAA, which provides assistance for remote area housing interest, was already in place. Subsection 142(2C) of the FBTAA provides rules for determining eligibility for the subsection 60(4) of the FBTAA reduction in taxable value. Subsection 142(2C) of the FBTAA sets out the criteria of when the recipients expenditure is in respect of remote area residential property. As part of that criteria, paragraph 142(2C)(c) of the FBTAA requires that the recipients expenditure be incurred wholly to enable the employee to acquire an estate or interest in land on which there is a dwelling. The recipient of the expense payment fringe benefit is an employee of the employer. Recipients expenditure, as defined in section 136(1) of the FBTAA means, in relation to an expense payment benefit, the expenditure incurred by the recipient as described in paragraph 20(b) of the FBTAA. The recipients expenditure is the loan repayment. The Macquarie Dictionary , 2001, Revised Third Edition, defines the term wholly as meaning: 1. entirely; totally; altogether; quite. 2. to the whole amount, extent, etc. 3. so as to comprise or involve all. The Commissioner does not consider that the loan repayment is incurred wholly or entirely for the purposes required by paragraph 142(2C)(c) of the FBTAA for the following reasons: 1. The loan repayment is expenditure incurred to enable the employee to meet the conditions of the loan and to enable the employee to reduce the debt owing to the bank. 2. The loan repayment is expenditure incurred to enable the employee to eventually discharge the mortgage over the property which he or she has previously acquired. 3. The loan repayment is not qualifying expenditure because at the time of the loan repayment, the employee had previously and separately incurred the cost of acquiring the estate or interest in land on which there is a dwelling as the purchaser under the contract of sale. 4. The loan repayment would include repayment of principal (the original borrowing), interest and other charges. Repayment of the principal component would not be qualifying expenditure as per reasons 1 to 3 above. 5. The loan repayment would include repayment of principal (the original borrowing), interest and other charges. Repayment of the interest component would not be qualifying expenditure as per reasons 1 to 3 above. 6. The loan repayment would include repayment of principal (the original borrowing), interest and other charges. Repayment of the interest component would not be qualifying expenditure under subsection 60(4)of the FBTAA as subsection 60(2) of the FBTAA applies to this expenditure at the time the expenditure is incurred, as expenditure related to a remote area housing loan. Refer also ATO Interpretative Decision ATO ID 2003/157. Subsection 60(4) of the FBTAA does not provide an additional method of claiming benefits already available under subsection 60(2) of the FBTAA. Accordingly, paragraph 142(2C)(c) of the FBTAA is not satisfied. Note: please refer to ATO Interpretative Decision ATO ID 2003/160 where an employee's cost of the purchase of a house was considered to be qualifying expenditure within paragraph 142(2C)(c) of the FBTAA.

Legislative references: Fringe Benefits Tax Assessment Act 1986 paragraph 20(b) subsection 136(1) section 60(4) subsection 142(2C) paragraph 142(2C)(a) paragraph 142(2C)(b) paragraph 142(2C)(c) paragraph 142(2C)(d)
Related ATO interpretative decisions: ATO ID 2003 157 | ATO ID 2003 159 | ATO ID 2003 160
Other references: Explanatory Memorandum to Taxation Laws Amendment Act (No 4) 1988 Macquarie Dictionary, 2001, Revised Third Edition
Subject references: Expense payment fringe benefits FBT expense payment FBT remote area housing FBT taxable value Fringe benefits Fringe benefits tax Reduction of taxable value Remote housing fringe benefits