Private ruling: Exempt benefits: sale or acquisition of dwelling as a result of relocation
Published: July 2013
Ruling period: Year ended 31 March 2013 | Year ended 31 March 2014
Date scheme commenced: 1 April 2012

Ruling: Q1: Will the stamp duty on the employee's new house, paid by the employer, be exempt from fringe benefits tax (FBT) upon the employee's relocation to Location B? | A1: No | Q2: Where the employee sells their joint interest in the original house to their spouse, do they still meet the criterion of selling their interest solely because they are required to change their usual place of residence in order to perform the duties of their employment? | A2: No

Relevant facts and circumstances: The employee was living at Location A in a property jointly owned with their spouse and relocated to Location B to perform the duties of employment. Upon relocation the employee purchased (jointly with spouse), a house at Location B. The employee now intends to transfer the interest in the house in Location A to the spouse which will then be used for investment purposes. The employer proposes to reimburse the stamp duty cost on behalf of the employee, as an incidental cost of acquiring a dwelling upon relocation. The employee also intends to transfer their interest in the home in Location B to the spouse. The reason given for selling the house in Location A and transferring the house in Location B was because of the position the employee now holds with the employer, they no longer wish to hold assets in their own name. In support of the application a copy of Agenda item 10 of the NTLG FBT Sub-committee FBT Minutes was provided.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 58C.

Reasons for decision: Summary: For an exemption to apply the pre-conditions contained in subsection 58C(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) must be satisfied. As explained in our reasoning for question 2, paragraph 58C(1)(b) of the FBTAA is not satisfied so these pre-conditions were not met. | Detailed Reasoning - Detailed reasoning: Section 58C of the FBTAA provides for an exemption for benefits in respect of the sale or acquisition of a dwelling as a result of relocation and subsection 58C(3) of the FBTAA deals with the acquisition and it states: Where: (a) at a particular time, the employee or an associate of the employee acquires: (i) a prescribed interest in land on which: (A) there is a building constituting or containing another dwelling; (B) the employee or associate proposes to construct, or complete the construction of, a building constituting or containing another dwelling; (ii) a prescribed interest in a stratum unit in relation to another dwelling; or (iii) a proprietary right in respect of another dwelling, being a flat or home unit; (b) the employee or associate acquires the interest or right solely because the employee is required to change his or her usual place of residence in order to perform the duties of that employment at the employee's new place of employment; (c) the employee or associate entered into a contract for the acquisition of the interest or right on a day (the contract day) within 4 years after the new employment day; (ca) if, on the contract day, the employee or associate holds an interest or right in another dwelling in a situation where: (i) if that interest or right were sold within 2 years after the new employment day; and (ii) if a benefit of a kind referred to in subsection (2) were provided in relation to that interest or right; the benefit would be an exempt benefit under subsection (2) - not more than 2 years have elapsed since the new employment day; (d) immediately after the completion of the acquisition, the employee occupied the other dwelling, or proposed to occupy the other proposed dwelling, as his or her usual place of residence; (e) any of the following benefits is provided in respect of that employment of the employee in, or in respect of, a year of tax: (i) an expense payment benefit where the recipients expenditure is incidental to the acquisition of that interest or right; (ii) a residual benefit where the recipients benefit is incidental to the acquisition of that interest or right; (iii) an expense payment benefit where the recipients expenditure is in respect of the act of connecting or re-connecting a telephone service to the other dwelling or proposed dwelling; (iv) a residual benefit where the recipients benefit is constituted by the act of connecting or re-connecting a telephone service to the other dwelling or proposed dwelling; (v) an expense payment benefit where the recipients expenditure is in respect of the act of re-connecting gas or electricity to the other dwelling or proposed dwelling; (vi) a residual benefit where the recipients benefit is constituted by the act of re-connecting gas or electricity to the other dwelling or proposed dwelling; (f) if subparagraph (e)(iii) or (iv) applies - immediately before the change, a telephone service was provided to the unit of accommodation that was the employee's usual place of residence before the change; (g) if subparagraph (e)(i), (iii) or (v) applies - documentary evidence of the recipients expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date; and (h) the benefit is not provided under a non-arm's length arrangement; the benefit is an exempt benefit in relation to the year of tax. Stamp duty is an expense incidental to the acquisition of the property in Location B. The reason for purchasing the house in Location B was because of the requirement to relocate to perform duties of employment. Therefore when it was acquired the acquisition was solely as a result of the employee having to relocate to perform duties of employment with the employer. However for subsection 58C(3) of the FBTAA to apply the pre-conditions in subsection 58C(1) of the FBTAA need to be satisfied. As explained below the pre-conditions have not been satisfied as the property in Location A was not sold solely because of the employee was required to relocate to perform duties of employment with the employer. As the pre-conditions are not met the payment of the stamp duty is not an exempt benefit under section 58C of the FBTAA. | Summary: The reason to sell the property in Location A was not solely because the employee was required to change their usual place of residence to perform the duties of employment. The employee has made a decision and no longer wants to hold any property in their own name. This includes the home in Location A. | Detailed Reasoning - Detailed reasoning: Subsection 58C(1) of the FBTAA provides a set of pre-conditions which have to be met in order for a sale or acquisition of a dwelling as a result of relocation to be an exempt benefit and it states: Where: (a) during a particular period (in this subsection called the ``former home holding period''), an employee of an employer, or an associate of an employee of an employer, holds: (i) a prescribed interest in land on which: (A) there is a building constituting or containing a dwelling; (B) the employee or associate proposes to construct, or complete the construction of, a building constituting or containing a dwelling; (ii) a prescribed interest in a stratum unit in relation to a dwelling; or (iii) a proprietary right in respect of a dwelling, being a flat or home unit; (b) the employee or associate sells, or proposes to sell, the interest or right solely because the employee is required to change his or her usual place of residence in order to perform the duties of his or her employment; (c) the employer first notifies the employee at a time (in this subsection called the ``notice time'') during the former home holding period that the employee is required to perform the duties of that employment at the employee's new place of employment; and (d) at the notice time, the employee occupied, or proposed to occupy, the dwelling, or proposed to occupy the proposed dwelling, as his or her usual place of residence; (e) (Repealed by No 23 of 2005) the following subsections have effect. The arrangement that we are ruling on was dealt with at Agenda item 10 of the NTLG FBT Sub-committee meeting. In respect of the scenario the minutes state in part: Scenario: an employee and his spouse own a house jointly. The employee sells his interest in the house to his spouse after the employee is notified that he is required to change his place of residence in order to perform duties of his employment. The employee then incurs incidental costs such as stamp duty on the acquisition of a house at the new location. Background We seek confirmation from the ATO that the pre-condition in paragraph 58C(1)(b) is met where only the employee sells his interest in the dwelling and that the incidental acquisition costs incurred in such a scenario are exempt from FBT under subsection 58C(3): An employee and his spouse jointly own a house together. The employee's employer requires the employee to change his usual place of residence in order to perform duties of his employment at a new location. As a result, the employee enters into a contract to sell his interest in the house to his spouse within 2 years after commencing employment duties at the new location. The employee sells his interest to his spouse to enable him to have the necessary funds to undertake the purchase of a dwelling at the new place of residence. The former dwelling will subsequently be used as an investment property by the spouse to derive rental income. The employee also enters into a contract to buy a house in his own name in the new location within 4 years of starting his new employment and will incur incidental acquisition costs such as stamp duty which will be reimbursed by his employer. The necessary documentary evidence will be provided to the employer by the declaration date to treat the stamp duty costs as an exempt benefit under subsection 58C(3). . . The Australian Taxation Office (ATO) response stated in part: . . .The scenario put forward in the CPA Aust submission is that an employee and his spouse own a house jointly. The employee sells his interest in the house to his spouse after the employee is notified that he is required to change his place of residence in order to perform duties of his employment. The employee then incurs incidental costs such as stamp duty on the acquisition of a house at the new location. The former dwelling will subsequently be used as an investment property by the spouse to derive rental income. The ATO agreed that the concessions provided under section 58C are available to an employer where an employee, or associate of an employee, holds a prescribed interest in land on which there is a building (a dwelling). Further 'prescribed interest' is defined in sub-section 141(2) for the purposes of the FBTAA, and means, as an example; A person acquires, holds or held an estate in fee simple in land or in a stratum unit or 2 or more persons acquire, hold or held such an estate in land or in a stratum unit as joint tenants or tenants in common. Clearly the provisions deal with an employee or associate (each) having a prescribed interest in a dwelling. The provisions also look at that prescribed interest being sold. The provisions do not appear to require both and employee and an associate, who hold a prescribed interest in a dwelling, to both sell their prescribed interests. The ATO noted that the Explanatory Memorandum to Taxation Laws Amendment (Fringe Benefits and Substantiation) Bill 1987, when section 58C was originally introduced, states the following: Broadly, the pre-condition is that the employee owned a home at the former locality that is sold as a result of the employee's relocation ….. that property was sold solely because the employee changed his or her usual place of residence in order to perform employment duties. However, it was acknowledged that the law does not appear to require that the employee sells a property but rather the employee sells their interest in that property. Paragraph 58C(1)(b) states: the employee or associate sells, or proposes to sell, the interest or right solely because the employee is required to change his or her usual place of residence in order to perform the duties of his or her employment. Where the employee sells their interest in the old dwelling to their spouse and the spouse subsequently treats that as an investment property to derive rental income, as in the scenario put forward, the question that arises is whether in fact the employee has sold their interest solely because the employee is required to change his or her usual place of residence in order to perform the duties of his or her employment? . . . As acknowledged in the ATO response it does not appear that the exemption requires the property be sold, just the employee's interest in that property. So in situations where that property was jointly owned and the employee sells their interest in the property to the other owner the exemption could still apply. However it will only apply if the interest was sold solely because the employee was required to change his or her usual place of residence in order to perform the duties of his or her employment. In this case we have an employee who relocated in order to perform their duties of employment. Prior to relocation the employee jointly held a property with their spouse which they lived in. Upon relocating the employee purchased another property to reside in. This is also in joint names. The employee now intends to sell their interest in the home in Location A to the spouse who will use the property as an investment. The employee also intends to transfer the interest in the Location B house to the spouse. The reason given for selling the Location A house and transferring the Location B home to the spouse is because the employee does not want to have personal assets held in their own name. The sale of home in Location A is a transfer which will result in the employee not holding personal assets in their own name. Had the need to change usual place of residence been the sole reason for selling the Location A home there would be no need to also transfer the Location B home (or any other assets), to the spouse. Therefore paragraph 58C(1)(b) of the FBTAA has not been satisfied and the pre-conditions set down in subsection 58C(1) of the FBTAA has not been met.