ATO ID 2005/156: Exempt Benefits: remote area housing - non-arm's length arrangement
Date of decision: 1 June 2005
Year of income: Year ended 31 March 2006
Business line: Superannuation and Employer Obligations

Issue
Where a housing benefit is provided in a 'remote area' location, to an employee who is also a shareholder of the employer company, will the recipients overall housing right always be granted to the employee under a non-arm's length arrangement for the purposes of subparagraph 58ZC(2)(e)(i) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision
No. Even though the employer and employee are not at arm's length, a recipients overall housing right can be granted as part of an arm's length arrangement. As such, the recipients overall housing right was not granted to the employee under a non-arm's length arrangement for the purposes of subparagraph 58ZC(2)(e)(i) of the FBTAA.

Facts
A company provides professional services in a remote area. The company rents a house in the remote area. The company makes the house available to an employee at no cost to the employee. The employee is employed by the company as a manager. The employee is also a shareholder of the employer company. The company does not have any other employees who are managers. The company has always had a written policy of providing free housing to any of its managerial employees working in remote areas.

Reasons for decision
Summary: Section 58ZC of the FBTAA exempts remote area housing benefits from fringe benefits tax. Apart from the question of location, for a housing benefit to qualify as a remote area housing benefit (and therefore be exempt from fringe benefits tax), the conditions set out in subsection 58ZC(2) of the FBTAA must be satisfied. Subparagraph 58ZC(2)(e)(i) of the FBTAA requires that the recipients overall housing right was not granted to the employee under a non-arm's length arrangement. Within subsection 136(1) of the FBTAA, the expression non-arm's length arrangement is defined to mean an arrangement other than an arm's length arrangement. The term arm's length arrangement is not defined in the FBTAA. However, section 136(1) defines arm's length transaction to mean a transaction where the parties to the transaction are dealing with each other at arm's length in relation to the transaction. The expression at arm's length is defined in The CCH Macquarie Concise Dictionary of Modern Law , 1988, CCH Australia Ltd/ Macquarie Library Pty Ltd, Sydney as meaning that the parties to a transaction are not connected in such a way as to bring into question the ability of one to act independently of the other. In Granby Pty Ltd v. FCT (1995) 30 ATR 400; 95 ATC 4240, where the expression dealing with each other at arm's length in section 160ZH of the Income Tax Assessment Act 1936 was in question, Lee J said (at ATR 403; ATC 4243): The expression "dealing with each other at arm's length" involves an analysis of the manner in which the parties to a transaction conducted themselves in forming that transaction. What is asked is whether the parties behaved in the manner in which parties at arm's length would be expected to behave in conducting their affairs. Of course, it is relevant to that enquiry to determine the nature of the relationship between the parties, for if the parties are not parties at arm's length the inference may be drawn that they did not deal with each other at arm's length. Even though the employer and the employee are not at arm's length, the employer has a written policy of providing free housing to all of its managerial employees working in remote areas. As such, it is considered that the recipient's overall housing right was granted under an arm's length arrangement. As the recipient's overall housing right was not granted under a non-arm's length arrangement, subparagraph 58ZC(2)(e)(i) of the FBTAA is satisfied.

Legislative references: Fringe Benefits Tax Assessment Act 1986 section 58ZC subsection 58ZC(2) subparagraph 58ZC(2)(e)(i)
Case references: Granby Pty Ltd v. FCT (1995) 30 ATR 400 95 ATC 4240
Related public rulings and determinations: Taxation Determination TD 93/200 (Withdrawn) | Taxation Determination TD 93/201 (Withdrawn)
Related ATO interpretative decisions: ATO ID 2001/761 | ATO ID 2002/412
Other references: The CCH Macquarie Concise Dictionary of Modern Law, 1988, CCH Australia Ltd/Macquarie Library Pty Ltd, Sydney
Subject references: FBT exempt housing benefit FBT remote area housing FBT unit of accommodation Fringe benefits Fringe benefits tax Housing fringe benefits Remote housing fringe benefits