Private ruling: FBT – Exempt Benefits – Sale or Acquisition of Dwelling as a result of Relocation
Date of advice: 21 September 2018
Published: October 2018
Ruling period: 1 April 2017 to 31 March 2018 | 1 April 2018 to 31 March 2019 | 1 April 2019 to 31 March 2020 | 1 April 2020 to 31 March 2021 | 1 April 2021 to 31 March 2022
Date scheme commenced: Early 2018

Ruling: Q1: Will your reimbursement of costs incurred by your employee in respect of selling their former residence, relocation costs, and the stamp duty and legal fees paid on the purchase of their new residence be an exempt benefit under section 58C of the Fringe Benefits Tax Assessment Act 1986 ? | A1: Yes

Relevant facts and circumstances: You have an employee who commenced working for you in mid- 2018. The date of the employee’s employment contract is early 2018. A Copy of the contract has been provided. The nature and conditions of employment are included in the contract. The employee is currently commuting to and from their usual place of residence on a daily basis. The trip is approximately 130 km each way and takes approximately 90 minutes. The employee is sometimes required to attend early morning meetings which start at 7am. The employee has advice from their doctor that the trip is unsustainable and a risk to their health and wellbeing. The employee intends to move to the location of their new employment to set up their usual place of residence and fulfil their employment duties. The employee intends to sell their current property after moving to the new location. No steps have yet been taken. The only reason the employee will sell their current residence and buy a new residence is to be closer to work. The employee has purchased a residential block at the new location which currently has no dwelling on it. The employee intends to apply for a bank loan to construct a new residence once their employment probation period has expired. The contract of sale was signed in mid- 2018. The new residence that will be constructed on this land will be the employee’s usual place of residence. The employee resides with their family at their current residence. When the employee moves to the new location, their family will move with them. The employee did not intend on moving from their current place of residence prior to finding employment at the new location. The employee has provided you with a comprehensive statement in relation to the risk to their health and wellbeing as a result of the distance and travel time between their current place of residence and the new location of employment. The employee has advice from their banking institution that any new loan would require them to complete their 6 month qualifying period to evidence a permanent source of income. You did not require the employee to change their residential location. There are no requirements to live within a certain distance of the new employment location. The employee is seeking to enter into a salary sacrificing arrangement with you for you to reimburse them in respect of the cost they incur for relocation costs (including the costs of sale/acquisition of dwelling). Assumptions ● The benefit you provide to the employee will be provided under an arm’s length arrangement; ● The employee will enter into a contract for the sale of their dwelling within 2 years of commencing employment; ● The employee will provide you with relevant documentary evidence of the expenditure prior to the declaration date.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 Section 20 | Fringe Benefits Tax Assessment Act 1986 Section 58B | Fringe Benefits Tax Assessment Act 1986 Subsection 58C | Fringe Benefits Tax Assessment Act 1986 Section 58D | Fringe Benefits Tax Assessment Act 1986 Subsection 136(1) | Fringe Benefits Tax Assessment Act 1986 Section 141A | Fringe Benefits Tax Assessment Act 1986 Section 142B

Reasons for decision: Summary: Section 58C provides a fringe benefit tax exemption for benefits provided to employees for costs that are incidental to the sale and/or purchase of the employee’s home where it is solely because the employee is required to change their usual place of residence to perform the duties of their employment. Subsection 58C(1) sets out the necessary pre-conditions for the application of the exemption. Subsection 58C(2) provides an exemption for benefits in relation to the sale of the home at the old locality and subsection 58C(3) provides an exemption for benefits if there is a purchase of a home at the new locality. Each subsection has certain requirements that are discussed below. | Detailed Reasoning - Pre-conditions for exemption – subsection 58C(1): The pre-conditions set out in subsection 58C(1) must be satisfied for the application of the exemption. Subsection 58C(1) states: | Detailed Reasoning - 58C(1) [Pre-condition for application of exemption]: 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; … | Detailed Reasoning - Application to your circumstances: Each of the above pre-conditions is considered in relation to the circumstances under which you will reimburse your employee for the expenses they incur in relation to relocating. As stated below, each of the pre-conditions is satisfied. (a) Did the employee hold during the “former home holding period” an interest in land on which there is a dwelling, stratum unit, flat or home unit, or propose to construct a dwelling? During the “former home holding period” the employee held an interest in land on which there is a dwelling. Therefore, this condition in paragraph 58C(1)(a) is satisfied. (b) Did the employee sell the interest or right solely because he/she was required to change his/her usual place of residence in order to perform the duties of his/her employment? Paragraph 58C(1)(b) contains three elements: 1. Was the employee required to change his or her usual place of residence? 2. Was the required relocation to enable the employee to carry out duties of employment? 3. Was the sale of property solely because the employee is required to relocate and is required to relocate in order to perform the duties of employment? As discussed below, the three elements are satisfied. 1. Was the employee required to change his or her usual place of residence? In looking at whether the current property is the employee’s ‘usual place of residence’ chapter 11.2 of Fringe benefits tax: a guide for employers states as follows: …An employee's place of residence is the place at which they reside or have some form of sleeping accommodation, regardless of whether on a permanent or temporary basis, or on a shared basis… In this case, the employee’s usual place of residence is their current dwelling where they continue to reside with their family. 2. Was the required relocation to enable the employee to carry out duties of employment? ATO Interpretive Decision ATO ID 2013/8 Fringe Benefits Tax Employee required to change usual place of residence in order to perform duties of employment (ATOID 2013/8) provides guidance on the meaning of ‘required’ in the context of subparagraph 58B(1)(b)(iii): The term 'required' is not defined in the FBTAA. Therefore, it must take its ordinary meaning in the context in which it is used. Relevantly , [The Macquarie Dictionary]… defines 'require' as: 'to have need of; need; to impose need or occasion for; make necessary or indispensable; to place under an obligation or necessity.' Therefore, it is considered that the term 'required' as it is used in subparagraph 58B(1)(b)(iii) does not mean that the change of usual place of residence must be compulsory. Rather, the change may be one that is necessary in the circumstances in order for the employee to perform the duties of their employment. In ATO ID 2013/8 the employee was not required by their employer to change their usual place of residence, but their employment duties were such that it made it necessary for the employee to change their usual place of residence to effectively perform those duties. The following factors were taken into consideration: ● The distance between the employee’s usual place of residence and their new place of employment ● The employee was not permitted to perform their new duties of employment from the former place of employment ● The employer did not provide transport for the employee to commute between their usual place of residence and the new place of residence; and ● The employee was required to be on call at certain times and to sign on for duty within two hours of being contacted by their employer. A required relocation implies that in a practical sense the relocation was required because the inherent nature of the employment is such that the duties of employment could not otherwise be carried out. You require that the employee carry out his duties of employment at your location during office hours regardless of where he lives. Provided the employee is on duty when required, it is not relevant where he lives. The employee has been carrying out his duties of employment while still living at his usual place of residence. However, the travel distance of approximately 130 kilometres each way and time required to travel this distance of at least 90 minutes is not sustainable in the long term. Furthermore, meetings start at 7am which would require the employee to leave his usual place of residence at 5am in order to be able to attend. Taking all factors into consideration, it is concluded that the relocation is required to enable the employee to carry out their duties of employment. Therefore, this element is satisfied. 3. Was the sale of property solely because the employee is required to relocate and is required to relocate in order to perform the duties of employment? As discussed above, the employee is required to relocate in order to perform their employment duties. In addition, from the information provided, it appears that the employee’s sole reason for intending to relocate is in order to perform their employment duties and there does not appear to be any other reason for the relocation. Therefore, this element is satisfied. (c) Did the employer first notify his/her employee 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? According to section 142B, a reference to a ‘new place of employment’ does not imply that the employee needs to be employed at their former usual place of residence. The employee was notified of their new employment location and the duties expected to perform in that employment in early 2018 when they were residing at their current home. Therefore this third condition is satisfied. (d) Did the employee occupy, or propose to occupy, at the notice time, the dwelling, or propose to occupy the proposed dwelling, as his/her usual place of residence? The employee’s usual place of residence is their current dwelling at the time they were notified of their new employment duties and continues to be at the present time. Therefore this fourth condition is satisfied. | Detailed Reasoning - Benefits in respect of the sale of property – subsection 58C(2): The four pre-conditions in subsection 58C(1) are satisfied. Therefore subsection 58C(2) applies. Subsection 58C(2) provides that a benefit will be an exempt benefit for FBT purposes, where several conditions are satisfied, which can be summarised as follows: 1. Either an expense payment benefit or a residual benefit must have been provided, where the expenditure or benefit is incidental to the sale of that interest or right. 2. The employee or associate must have entered into a contract for the sale of the interest or right within 2 years after the day (the “new employment day” ) on which the employee commenced to perform the new duties of employment. 3. Documentary evidence of the recipient’s expenditure must have been obtained, and provided to the employer before the declaration date. 4. The benefit must not have been provided under a non-arm’s length arrangement. These conditions are discussed below. 1. Was either an expense payment benefit, or a residual benefit, provided, where the expenditure or benefit is incidental to the sale of that interest or right? Pursuant to section 20, an ‘expense payment benefit’ is: Where a person (in this section referred to as the provider ): (a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the recipient ) to pay an amount to a third person in respect of expenditure incurred by the recipient; or (b) reimburses another person (in this section also referred to as the recipient ), in whole or in part, in respect of an amount of expenditure incurred by the recipient; the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient. Accordingly, the proposed arrangement will be an expense payment benefit, as defined in section 20, because the employer will reimburse the employee for expenses incurred by the employee. The expenditure that is reimbursed or benefits provided must be incidental to the sale of the property. Section 141A outlines types of costs which will be regarded as incidental to both the sale and acquisition of property under the FBTAA. Section 141A(1) relevantly provides that: (b) in all cases - the recipient’s expenditure is in respect of any of the following matters: (i) stamp duty; (ii) advertising; (iii) legal services; (iv) agent's services; (v) discharge of a mortgage; (vi) expenses of borrowing; (vii) any similar matter; being a matter of a capital nature that is incidental to the acquisition or sale of the interest or right; and (c) in all cases - the recipients expenditure is not in respect of: (i) interest; (ii) repayments of principal; (iii) loan service fees; (iv) the discharge of a mortgage, or expenses of borrowing, where the money borrowed was not applied wholly in respect of the land, stratum unit or proprietary right or in respect of a building on the land; (v) insurance; or (vi) rates. In this case, all relevant expenditure is regarded as ‘incidental to the sale of property’ under the FBTAA. Furthermore, none of the exclusions set out in paragraph 141A(1)(c) apply. Therefore, the relevant expenditure is regarded as ‘incidental to the sale of property’. 2. Did the employee or associate enter into a contract for the sale of the interest or right within 2 years after the day (the “new employment day”) on which the employee commenced to perform the new duties of employment? The employee intends selling their current property. For this condition to be satisfied the employee has to enter into a contract for the sale of the interest or right within 2 years of commencing employment. If the employee doesn’t sell their current property within 2 years of commencing their new employment, the benefit will become FBT liable in the year of tax in which the two-year period expires. For the purposes of this ruling it is assumed that the sale occurs within two years. 3. Was documentary evidence of the recipient’s expenditure obtained, and provided to the employer before the declaration date? In this case, documentary evidence has not yet been provided. This condition will be satisfied, if the employer is provided with relevant documentary evidence of the recipient’s expenditure, prior to the declaration date. For the purposes of this ruling it is assumed that this occurs. 4. The benefit must not have been provided under a non-arm’s length arrangement. For the purposes of this ruling it is assumed that the benefit will be provided under an arms-length arrangement. | Detailed Reasoning - Conclusion:: It is considered that all the conditions in subsections 58C(1) and 58C(2) will be satisfied. Therefore your reimbursement of your employee’s expenditure in respect of the sale of his current property, will be an exempt benefit under subsection 58C(2). | Detailed Reasoning - Benefits in respect of the acquisition of property - subsection 58C(3): For similar reasons as outlined above in relation to the sale of property, the proposed reimbursement arrangement in relation to the acquisition of property will be an expense payment fringe benefit for the purposes of section 136. A benefit relating to the acquisition of property will only be exempt under subsection 58C(3) if the four pre-conditions set out in subsection 58C(1) are satisfied, and the further conditions in subsection 58C(3) are also satisfied. In this case, the pre-conditions (as discussed above in relation to the sale of property) are satisfied in respect of the acquisition of property, because the employee owned property at the relevant times and was required to change their place of residence as a result of new employment. Subsection 58C(3) provides that an expense payment benefit where the recipients expenditure is incidental to the acquisition of an interest or right in a dwelling relating to the acquisition of property will be exempt, if the following conditions are met. 1. The employee, or an associate, must acquire a prescribed interest or proprietary right in relation to a dwelling, as defined by paragraph 58C(3)(a). 2. The employee or associate must acquire the interest or right solely because the employee is required to change his or her usual place of residence in order to perform duties at their new place of employment. 3. The employee or associate must have entered into a contract for the acquisition of the interest or right within 4 years after commencing the new employment. 4. Immediately after completing the acquisition, the employee must have either occupied the new dwelling, or proposed to occupy the new dwelling, as his or her usual place of residence. 5. The benefit provided must fit within one of the benefit types listed in paragraph 58C(3)(e). 6. Documentary evidence of the recipient’s expenditure must have been obtained by the recipient, and provided to the employer. 7. The benefit must not have been provided under a non-arm’s length arrangement. These conditions are discussed below. 1. Did the employee, or an associate, acquire a prescribed interest or proprietary right in relation to a dwelling, as defined by paragraph 58C(3)(a)? The employee purchased a block of land at the new location in mid-2018 on which they propose to construct a building constituting a dwelling as required by paragraph 58C(3)(a). Therefore this condition is satisfied. 2. Did the employee or associate acquire the interest or right solely because the employee is required to change his or her usual place of residence in order to perform duties at their new place of employment? As previously discussed, ATOID 2013/8 states that ‘required’ in this context does not mean that the employer must have required the employee to sell his or her usual place of residence. The employee can be regarded as ‘required’ to sell the interest or right in order to perform his or her duties, because of the distance between the usual place of residence and the new place of work. Other factors that have been taken into consideration include the employee being required to attend early morning meetings, working 9-12 hour days and the daily long distance travel being unsustainable and a risk to the employee’s health and wellbeing. Therefore this condition is satisfied. 3. Did the employee or associate enter into a contract for the acquisition of the interest or right within 4 years after commencing the new employment? 4. Immediately after completing the acquisition, did the employee either occupy, or propose to occupy, the new dwelling, as his or her usual place of residence? The employee purchased a block of land at the new location in mid- 2018, which is within 4 years of the commencement date of early 2018. The employee intends to construct a dwelling on the land which they will occupy as their usual place of residence. Provided that this occurs, these two conditions will be satisfied. 5. Does the benefit provided fit within one of the benefit types listed in paragraph 58C(3)(e)? One of the benefit types listed in subparagraph 58C(3)(e)(i) is ‘an expense payment benefit where the recipients expenditure is incidental to the acquisition of that interest or right’. Your reimbursement under the proposed arrangement will be an expense payment benefit (as defined in section 20) because you will reimburse the employee for relocation costs incurred by the employee. As detailed previously, section141A outlines types of costs which are be regarded as incidental to the sale and acquisition of property under the FBTAA. For similar reasons to those discussed above in relation to the sale of property, the expenses incurred in relation to the acquisition of the property by the employee that are to be reimbursed will be regarded as ‘incidental to the acquisition of property’. 6. Was documentary evidence of the recipient’s expenditure obtained by the recipient, and provided to the employer? In this case, documentary evidence has not yet been provided. This condition will be satisfied, if the employer is provided with relevant documentary evidence of the recipient’s expenditure, prior to the declaration date. For the purposes of this ruling it is assumed that this occurs. 7. The benefit must not have been provided under a non-arm’s length arrangement. For the purposes of this ruling it is assumed that the benefit will be provided under an arms-length arrangement. | Detailed Reasoning - Conclusion: It is considered that all the conditions set out in subsection 58C(3) will be satisfied. Therefore your reimbursement of your employee’s expenditure in respect of the acquisition of their new property, will be an exempt benefit for the purposes of subsection 58C(3). | Detailed Reasoning - Relocation - removals and storage of household effects (section 58B): Where you meet the costs of removal and storage of household effects of employees (both new and existing) who are required to temporarily or permanently relocate their residence because their job location changes, the benefit may be exempt. The exemption includes the costs of removal, storage, packing, unpacking and insurance of household effects (including pets) kept primarily for the personal use of the employee or family. Conditions to be satisfied include: the relevant benefit would be an expense payment fringe benefit or a residual fringe benefit but for the exemption; and where the benefit would be an expense payment fringe benefit but for the exemption, you must obtain documentary evidence of the employee's expenditure. In addition, where the employee's usual place of residence changes permanently to another location, the exemption applies if the removal takes place, or the storage commences, not more than 12 months after the employee begins employment-related duties at the new location. | Detailed Reasoning - Relocation - connection or reconnection of certain utilities (section 58D): Where an employee is required to relocate their residence in order to perform employment duties, the costs of connecting or reconnecting gas, electricity and telephone services to the new place of residence may be exempt benefits. Similarly, where there is a change in the employee's usual place of residence, these costs may be exempt benefits. Several requirements must be satisfied for the exemption to apply, namely: ● the relevant benefit would be an expense payment fringe benefit or a residual fringe benefit but for the exemption ● where the benefit would be an expense payment fringe benefit but for the exemption, you must obtain documentary evidence of the employee's expenditure ● in the case of telephone connections, the employee must have had a telephone connected at the former residence ● where the employee has permanently relocated, the benefits will be exempt only if the connection or reconnection of services is made within 12 months of the employee starting work at the new location.