ATO ID 2010/183: Fringe benefits tax: exempt benefits - remote area housing benefits - new novated lease arrangement
Date of decision: 28 September 2010
Year of income: Year ended 31 March 2011
Business line: Superannuation and Employer Obligations

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. 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
Summary: 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: 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: (a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, or intended to be enforceable, by legal proceedings; and (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. 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.

Legislative references: Income Tax Assessment Act 1936 section 260
Case references: Newton v Federal Commissioner of Taxation (1958) 98 CLR 1 (1958) 11 ATD 442 (1958) 7 AITR 298
Related public rulings and determinations: Taxation Ruling TR 2001/10
Related ATO interpretative decisions: ATO ID 2010/182
Subject references: Housing fringe benefits FBT exempt housing benefit Remote area housing fringe benefits