ATO ID 2003/157: Remote area housing: reduction of taxable value - remote area housing loan interest
Date of decision: 14 January 2003
Year of income: Year ended 31 March 2002
Business line: Private Groups and High Wealth Individuals

Issue
Is the employer entitled to claim a 50% reduction in the taxable value of the expense payment fringe benefit, as it relates to interest in respect of a remote area housing loan, pursuant to subsection 60(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision
Yes, because the expense payment fringe benefit is a reimbursement of the employee's interest incurred in relation to the employee's remote area housing loan.

Facts
The employee owns land on which there is a house. The employee lives in the house which is his or her usual place of residence. The employee has a housing loan with a bank. The loan was entered into to enable the employee to purchase the land and house. The employee is a current employee of the employer. The dwelling is situated in a remote area. The employee works in a remote area. In the employer's industry it is customary to provide housing assistance to employees. The loan is a remote area housing loan connected with a dwelling as required by paragraph 60(2)(b) and subsection 142(1) of the FBTAA. The employee incurs $5,000 interest in relation to the housing loan. The employer reimburses the full amount of the $5,000 interest expense incurred. This reimbursement is an expense payment fringe benefit as defined in subsection 136(1) of the FBTAA. There is no recipients contribution made by the employee to the employer. Paragraph 60(2)(d) of the FBTAA is about not allowing non-arm's length arrangements or arrangements entered into for the purposes of obtaining the tax concessions available under section 60. Paragraph 60(2)(d) does not apply to this arrangement. The facts as above continue to apply with the following exception. Instead of the employer reimbursing the full amount of the $5,000 interest expense incurred, the employer only reimburses (in part), half of the $5,000 interest expense incurred. This reimbursement, $2,500, is an expense payment fringe benefit as defined in subsection 136(1) of the FBTAA.

Reasons for decision
Summary: The recipient of the $5,000 (or $2,500) expense payment fringe benefit is the employee of the employer. Paragraph 60(2)(a) of the FBTAA is satisfied. 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 expenditure incurred by the recipient as described in 20(b) of the FBTAA is the amount of the interest expense incurred by the employee, $5,000. The loan is a remote area housing loan connected with a dwelling as required by paragraph 60(2)(b) and subsection 142(1) of the FBTAA. Accordingly, the $5,000 interest expense is recipients expenditure which is in respect of a remote area housing loan connected with a dwelling. Paragraph 60(2)(b) of the FBTAA is satisfied. The employee lives in the dwelling as his or her usual place of residence. Paragraph 60(2)(c) of the FBTAA is satisfied. Paragraph 60(2)(d) of the FBTAA does not apply. Subsection 60(2) of the FBTAA is satisfied. Accordingly, the employer is entitled to a 50% reduction of the taxable value of the expense payment fringe benefit. Based on the facts (and alternative facts) contained above, the reduction in taxable value of the expense payment fringe benefit would be calculated as follows:

Legislative references: Fringe Benefits Tax Assessment Act 1986 paragraph 20(b) subsection 60(2) paragraph 60(2)(a) paragraph 60(2)(b) paragraph 60(2)(c) paragraph 60(2)(d) subsection 136(1) subsection 142(1)
Related ATO interpretative decisions: ATO ID 2003/158 | ATO ID 2003/159 | ATO ID 2003/160
Subject references: Expense payment fringe benefits FBT expense payment FBT housing loan FBT interest on loans FBT remote area housing FBT taxable value Fringe benefits Fringe benefits tax Reduction of taxable value