Private ruling: FBT - Remote area housing benefits
Published: October 2013
Ruling period: FBT year ending 31 March 2014 | FBT year ending 31 March 2015 | FBT year ending 31 March 2016 | FBT year ending 31 March 2017
Date scheme commenced: 1 July 2013

Ruling: Q1: Will a fringe benefits tax (FBT) liability arise from the provision of accommodation to your employees? | A1: No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are located in a remote location according to the ATO fact sheet Fringe benefits tax - remote areas . You plan to provide rental accommodation to your employees because it is difficult for them to find suitable rented accommodation and landlords prefer not to rent directly to workers. Additionally, it is customary in your industry for employers to provide benefits such as rental accommodation to their employees. You will rent the accommodation directly from the landlords for your employees and they will salary sacrifice the rental cost of the accommodation. Houses can accommodate two or three employees living together or an employee and their family. The houses will be the employees' usual residences.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 25 | Fringe Benefits Tax Assessment Act 1986 section 136(1) | Fringe Benefits Tax Assessment Act 1986 subsection 58ZC(1) | Fringe Benefits Tax Assessment Act 1986 subsection 58ZC(2)

Reasons for decision: Summary: You propose an arrangement where your employees will salary sacrifice part of their salary or wage in return for accommodation, in a property you will rent from a third party and provide for their use. Paragraph 19 of Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements (TR 2001/10) outlines that a salary sacrifice arrangement is an arrangement between an employer and an employee, where the employee agrees to give up part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar value. All non-cash benefits can be sacrificed, but these benefits must be part of the employee's remuneration, replacing what usually would have been paid as salary. Furthermore, paragraph 21 of TR 2001/10 states that to be an effective salary sacrifice arrangement it must be in relation to your employee's future earnings rather than salary they have already earned. Section 25 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides that a housing benefit will arise where an employee is provided with the right to use a unit of accommodation, if the accommodation is the employee's usual place of residence. Subsection 136(1) of the FBTAA contains an inclusive definition of a unit of accommodation and a house is included in this definition. The FBTAA does not define 'usual place of residence'. However, in subsection 136(1) of the FBTAA it does define a 'place of residence' to mean: (a) a place at which the person resides; or (b) a place at which the person has sleeping accommodation; whether on a permanent or temporary basis and whether or not on a shared basis. In the absence of a legislative reference it is relevant to refer to the ordinary meaning of 'usual'. The Macquarie Dictionary defines 'usual' to mean: adjective 1.habitual or customary: his usual skill. 2. such as is commonly met with or observed in experience; ordinary: the usual January weather. 3. in common use; common: say the usual things. noun 4. that which is usual or habitual. phrase 5. as usual, as is (or was) usual; in the customary or ordinary manner: he will come as usual. In your circumstances, you will provide employees with rental accommodation. The location of the accommodation will be the employees' usual place of residence that they will permanently reside in while working for you, therefore a housing benefit will arise. Subsection 136(1) of the FBTAA defines a housing fringe benefit as a housing benefit that is a fringe benefit. The definition of fringe benefit in subsection 136(1) of the FBTAA excludes benefits that are exempt benefits. As the housing will be provided in a remote location of Australia, we will look at the provisions under section 58ZC of the FBTAA. Subsection 58ZC(1) of the FBTAA provides that a remote housing benefit is an exempt benefit. Subsection 58ZC(2) of the FBTAA explains what a remote area housing benefit is. 58ZC(2) What constitutes remote area housing benefit. A housing benefit in relation to an employer for a year of tax and for a unit of accommodation, being a benefit provided to an employee of the employer in respect of the employee's employment, is a remote area housing benefit if: (a) during the whole of the tenancy period, the unit of accommodation was located in a State or internal Territory and was not at a location in, or adjacent to, an eligible urban area; and (b) during the whole of the tenancy period, the recipient was a current employee of the employer and the usual place of employment of the recipient was not at a location in, or adjacent to, an eligible urban area; and (c) (Repealed by No 77 of 2005) (d) it would be concluded that it was necessary for the employer, during the year of tax, to provide, or to arrange for the provision of, residential accommodation for employees of the employer because: (i) the nature of the employer's business was such that employees of the employer were liable to be frequently required to change their places of residence; or (ii) there was not, at or near the place or places at which the employees of the employer were employed, sufficient suitable residential accommodation for those employees (other than residential accommodation provided by or on behalf of the employer); or (iii) it is customary for employers in the industry in which the recipient was employed during the tenancy period to provide residential accommodation for their employees free of charge or for a rent or other consideration that is less than the market value of the right to occupy or use the accommodation concerned; and (e) the recipients overall housing right was not granted to the recipient under: (i) a non-arm's length arrangement; or (ii) an arrangement that was entered into by any of the parties to the arrangement for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of this section. Therefore a housing benefit will comprise a remote area housing benefit if the following conditions are satisfied: (1) the unit of accommodation is in a remote area, (2) the recipient of the unit of accommodation is a current employee and the usual place of employment of the employee is in a remote area, (3) it is necessary for you to provide residential accommodation to an employee for one of the specified reasons and (4) the accommodation was not provided under a non-arms length arrangement or as part of an arrangement entered into by any of the parties for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of this section. | Detailed Reasoning - (1) Is the unit of accommodation in a remote area?: The accommodation will be located in a remote area. | Detailed Reasoning - (2) Is the recipient of the unit of accommodation a current employee and the usual place of employment of the employee is in a remote area?: You have advised that only current employees (and potentially their families) will be provided with accommodation and the location of employment is in a remote area. Therefore this condition is satisfied. | Detailed Reasoning - (3) Is it necessary for you to provide residential accommodation to an employee for one of the specified reasons?: You state that there is a lack of suitable rental accommodation and landlords are reluctant to rent properties directly to workers, they prefer for you to rent the properties for your employees. In addition is customary in your industry for employers to provide their employees with benefits such as accommodation. Therefore it can be concluded that it is necessary for you to provide accommodation for your employees. (4) Was the accommodation not provided under a non-arms length arrangement or as part of an arrangement entered into by any of the parties for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of this section? ATO Interpretative Decision ATO ID 2005/156 Fringe Benefits Tax: Exempt Benefits: remote area housing - non-arm's length arrangement discusses what is meant by the expression non-arm's length arrangement and states: 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. In your circumstances, the accommodation will be provided in independent arrangement between you and the employees. In addition, the accommodation will not provided for a purpose that includes the purpose of enabling you to obtain a benefit from the application of subsection 58ZC(2) of the FBTAA. Therefore this condition is satisfied. | Detailed Reasoning - Conclusion: As the conditions detailed in subsection 58ZC(2) of the FBTAA are satisfied, the provision of accommodation to your employees that live and work in the remote area, is a remote area housing benefit and therefore an exempt benefit.