Private ruling: Fringe benefits tax
Published: June 2014
Ruling period: Year ended 31 March 2010 | Year ended 31 March 2011 | Year ended 31 March 2012 | Year ended 31 March 2013 | Year ended 31 March 2014 | Year ended 31 March 2015
Date scheme commenced: 1 April 2009

Ruling: Q1: Are the benefits pertaining to accommodation, residential fuel, meals and other food and drink provided by the taxpayer to the employees (and their accompanying children) of the program exempt from FBT pursuant to section 58 of the Fringe Benefits Tax Assessment Act 1986 ? | A1: Yes | Q2: Are all housing benefits provided by the taxpayer exempt from FBT pursuant to sections 58ZC and 140(1A) of the Fringe Benefits Tax Assessment Act 1986 ? | A2: Yes | Q3: Does section 58ZC of the Fringe Benefits Tax Assessment Act 1986 take precedence over section 58? | A3: No

Relevant facts and circumstances: You are an employer who is a registered charity (a Charitable Institution). You operate a program through which involves certain employees living with people to whom they are providing care. The purpose of the program is to enable the people attending it to achieve certain objectives. Certain criteria are relevant in determining who can attend the program. The background of that person is also relevant. Included in the key areas of responsibility of your employees is: • Providing constant supervision and care. • Developing a framework for conduct in the house, and establishing household routines that encourage a climate of care. • Promote standards of cleanliness and sound hygiene practice. • Provide general first aid. Access medical and dental care as required. • Prepare all meals, ensuring an appropriate and nutritious diet. • Manage household finances within the allocated budget. • Ensure that all the programme property is preserved and cared for. • Undertake general upkeep of the house. • Ensure that the house bus is maintained in a safe and presentable condition. You own or lease each house used. Additionally you employ residential caretakers to live and work on your grounds, for example, maintain property and yards and provide a presence for safety and security purposes. The Caretakers are not part of the program. The caretakers are given a right to, and are required to occupy the house located on your grounds as their usual place of residence. The house is unfurnished. You own the houses and the grounds are where you conduct your business. For both types of employees, it is a requirement and it is customary within the industry to designate a residence for employees in these positions to occupy during their employment. Both types of employees are current employees at the time they use the houses as their usual residences. They are required to leave the houses if and when they cease employment. You have provided the location of the residences and places of business. You have been paying FBT on these benefits.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 , section 58 | Fringe Benefits Tax Assessment Act 1986 , section 58ZC | Fringe Benefits Tax Assessment Act 1986 , subsection 136(1) | Fringe Benefits Tax Assessment Act 1986 , subsection 140(1A)

Reasons for decision: Summary: The benefits pertaining to accommodation, residential fuel, meals and other food and drink that you provide to the employees (and their accompanying children) of the program are exempt benefits in accordance with section 58. | Detailed Reasoning - Detailed reasoning: For the provision of on-site accommodation, residential fuel, meals and other food and drink provided to your employees and their families to be exempt benefits under section 58 the conditions in paragraphs 58(1)(a) to (d) must be satisfied. For paragraph 58(1)(a) to be satisfied: • you must fall within one of the categories in subparagraphs 58(1)(a)(i) to (iv) and • your activities must consist of or include caring for elderly or disadvantaged persons. You fall within subparagraph (iii) as you are a company that is registered under the Australian Charities and Not-for-profits Commission Act 2012 and your charitable purpose is not the advancement of religion. As you are not involved in the care of elderly persons it is necessary to determine whether you are involved in the care of disadvantaged persons. This is also relevant in relation to paragraph 58(1)(b) which concerns the duties of your employees. Your activities must consist of or include, and the employment of the employees must consist of, or consist principally of: caring for disadvantaged persons and any children of those disadvantaged persons who reside with those disadvantaged persons. The term disadvantaged person is defined in subsection 136(1) and means: (a) a person who is intellectually, psychiatrically or physically handicapped; or (b) a person who is in necessitous circumstances. 'Necessitous circumstances' is not defined within the legislation. Guidance as to what is meant by necessitous circumstances can be found in Taxation Ruling TR 2000/9 which sets out the views of the ATO on public funds established and maintained for the relief of persons who are in necessitous circumstances. In paragraph 29 of TR 2000/9, the following summary is provided in relation to the meaning of necessitous circumstances: • necessitous circumstances concern financial necessity; • it involves some degree of poverty, though it may be less than abject poverty or destitution; • it is relative to a modest standard of living; • it is a relative term, which has no fixed quantitative measure and it may be relative to particular circumstances; and • it is to be distinguished from the inability to afford merely desirable advantages. In paragraphs 30 and 31 of TR 2000/9 it is also noted that: The expression 'necessitous circumstances' refers to financial necessity. It does not extend to needs generally. Kitto J said in Ballarat Trustees Executors and Agency Co Ltd v. FC of T (1950) 80 CLR 350 at 353: It was contended… that the expression "necessitous circumstances"…includes any circumstances of need, such as the need for hospital attention, and is not confined to circumstances of financial necessity. In my opinion so wide a construction of the expression should not be adopted, having regard to ordinary usage, the context in which the words appear and the history of the sub-section [8(5) of the Estate Duty Assessment Act 1914 - 1942]. I construe the expression as referring to circumstances characterised by some degree of financial necessity. Accordingly, the needs of the sick, incapacitated, aged, etc., do not, on their own, constitute necessitous circumstances. However, it may be the case that a non-financial need causes financial necessity. In paragraph 32A in TR 2000/9 in relation to Trustees of the Indigenous Barristers' Trust v. FC of T 2002 ATC 5055; (2002) 51 ATR 495 it is noted that: …some comments made by the Federal Court could be taken to imply that necessitous circumstances are not limited to financial necessity, and that they extend to the same range of needs addressed by public benevolent institutions…In so far as those comments could be taken to imply that needs - such as suffering, helplessness, misfortune or disability - constitute necessitous circumstances independently of financial necessity, they are considered to be inconsistent with the approach in the High Court in Ballarat Trustees. Ballarat Trustees will therefore continue to be followed in the administration of the law. The question of whether the people attending the program are in necessitous circumstances is therefore restricted to a consideration of their financial situation. In addressing what is meant by 'relative to a modest standard of living the following is noted from paragraphs 34 to 36 of TR 2000/9: Whether a person is in necessitous circumstances depends on whether he or she can obtain a modest standard of living. In Ballarat Trustees Kitto J said at 80 CLR 355: …I should say that a person is in necessitous circumstances if his financial resources are insufficient to enable him to obtain all that is necessary, not only for a bare existence, but for a modest standard of living in the Australian community. A strong indicator, though not the only indicator, can be whether the person is entitled to government assistance… …While we agree that a guide to the level of income necessary for an applicant to enjoy a reasonable standard of living might be the amount at which income tested Social Security benefits cease to be payable, this is not a conclusive factor and there may be other circumstances which need to be considered. The situation of those people attending the program has been considered and they are considered to be in necessitous circumstances. The next consideration is whether the employees are caring for the people attending the program. Given the many tasks involved, the level of responsibility and the amount of time spent with the people attending the program it is considered that your employees are employed caring for those attending the program. Consequently: • paragraph 58(1)(a) is satisfied as your activities include caring for disadvantaged persons through the family group home program and • paragraph 58(1)(b) is satisfied as the duties of employment of your employees consist of caring for disadvantaged persons. For the purposes of determining whether paragraphs 58(1)(c) and (d) are satisfied the term residential premises is defined in subsection 58(2) to mean: a house or hostel used exclusively for the provision of residential accommodation to: (a) elderly persons or disadvantaged persons and children of elderly or disadvantaged persons; (b) persons the duties of whose employment consist of, or consist principally of, caring for persons referred to in paragraph (a); and (c) spouses and children of persons referred to in paragraph (b). You own or lease the houses which are used for the program specifically for that purpose. As employees live with the people attending the program and the reason that they live there is in order to provide care to them, paragraphs 58(1)(c) and (d) are also satisfied. Since all of the conditions in paragraphs 58(1)(a) to (d) of the FBTAA are satisfied, the benefits listed in paragraphs (e) to (h) provided to your employees will be exempt benefits. Those benefits are: • Accommodation provided to the employees and any children residing with them at the premises. • Residential fuel in connection with that accommodation for the use of the employees or their children. • Meals provided on those premises to the employees and their children residing with them at the premises. • Food or drink (apart from meals) consumed by the employees and their children whilst they are residing at the premises. | Summary: You provide housing benefits to employees who work in the program and caretakers and these benefits are exempt from FBT pursuant to section 58ZC and subsection 140(1A). | Detailed Reasoning - Detailed reasoning: The exemption in section 58ZC applies to housing benefits that are remote area housing benefits. 'Housing benefit' is defined in subsection 136(1) as meaning a benefit referred to in section 25. Under section 25 a benefit will arise where a person grants a 'housing right' to another person. 'Housing right' is defined in subsection 136(1) as meaning a lease or licence being granted to a person to occupy a unit of accommodation as that person's current usual place of residence. 'Unit of accommodation' is defined in subsection 136(1) to include (amongst other things) accommodation in a house, flat, or home unit. The employees to whom you provide accommodation are employed in the program and are caretakers and those employees will occupy such premises as their usual place of residence at the relevant time. Therefore, for the purposes of the Fringe Benefits Tax Assessment Act 1986 , such arrangements will constitute housing benefits that you provide to your employees. Subsection 58ZC(2) sets out what constitutes a remote area housing benefit and requires that all of the following conditions be met (as relevant to this particular case): (a) during the whole of the tenancy period, the unit of accommodation …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 a location in, or adjacent to, an eligible urban area; and (c) … (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) … (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 accommodation provided by or on behalf of the employer); or (iii) it is customary for employers in the industry of which the employer was a participant to provide residential accommodation for their current 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 (a) the recipient's 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 purposes, or for the purposes that included the purpose, of enabling the employer to obtain the benefit of the application of this section. The definition of an eligible urban area is extended under subsection 140(1A) where housing benefits are provided to employees of: • a public hospital • a government body where the duties of the employee are exclusively performed in, or in connection with, a public hospital or a non-profit hospital • a hospital carried on by a non-profit society or a non-profit association • a charitable institution • a public ambulance service, or • a police service. For these employers, regardless of whether or not they are located in a zone A or B area (for income tax purposes), an employee's housing will not be considered adjacent to an eligible urban area (and will therefore be remote), where it is situated less than 40 kilometres via the shortest practical surface route from the centre point of an eligible urban area with a census population of less than 130,000 people. The location of your premises and the housing is considered to be remote for the purpose of determining whether a housing benefit is a remote area housing benefit. Consequently, given that the employees working in the program and the caretakers are current employees both paragraph 58ZC(2)(a) and (b) are satisfied. It is a requirement that the employees working in the program and care takers occupy the accommodation provided to them as part of their employment. It is normal or common within the industry to designate a residence for employees in these positions to occupy during their employment. Therefore paragraph 58ZC(2)(d) is also satisfied. There is nothing in the arrangement to suggest that the accommodation has been provided under a non-arm's length arrangement. The employees working in the program and the caretakers will be required to leave the accommodation when they cease employment and you have been paying fringe benefits tax on the provision of these benefits in previous years. Therefore paragraph 58ZC(2)(e) is also satisfied Since all of the requirements of subsection 58ZC(2) are satisfied, the accommodation that you provide to your employees, who are the employees working in the program and caretakers, is an exempt benefit in accordance with section 58ZC. | Summary: Section 58ZC does not take precedence over section 58. | Detailed Reasoning - Detailed reasoning: Section 58 and section 58ZC are two separate provisions which allow for particular benefits to be exempt benefits. If an employer satisfies the requirements of section 58 then the accommodation provided in accordance with that section will be an exempt benefit. This will also apply to any other of the benefits included in section 58 i.e. residential fuel, meals and other food and drink. The fact that apart from that section, housing benefits provided to employees are exempt benefits under section 58ZC does not mean that that provision takes precedence. In accordance with section 135Q the notional taxable value of benefits that are exempt benefits under section 58, which are called quasi fringe benefits, will be included in an employee's reportable fringe benefits amount unless they are excluded. Excluded fringe benefits are not included in an employee's reportable fringe benefits amount. An excluded benefit is a fringe benefit, or quasi fringe benefit, that is listed in subsection 5E(3). The provision of residential fuel, meals and other food and drink which is an exempt benefit under section 58 is not an excluded fringe benefit. Consequently the provision of residential fuel, meals and other food and drink which is an exempt benefit under section 58 must be reported on the employee's payment summary.