Private ruling: Remote Area Housing Benefits and Expense Payment Benefits
Date of advice: 6 December 2018
Published: March 2019
Ruling period: Year ending 31 March ZZZZ
Date scheme commenced: 1 April YYYYY

Ruling: Q1: Will the payment or reimbursement by the Company, under a salary sacrifice arrangement, of an employee’s expenditure on rental payments for accommodation, be exempt from Fringe Benefits Tax (FBT) as a ‘remote area housing benefit’ in accordance with section 58ZC of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: No. | Q2: Will the taxable value of an expense payment benefit resulting from the payment or reimbursement by the Company, under a salary sacrifice arrangement, of an employee's expenditure on rental payments for accommodation, be reducible in accordance with subsection 60(2A) of the FBTAA? | A2: No.

Relevant facts and circumstances: 1. The Company operates a gift store, which is situated in a town in regional Australia. 2. The Company is intending to employ an employee (‘the Employee’) to work as a sales assistant/buyer in their store. 3. The Employee currently lives in a unit of rental accommodation, being a home unit (‘the rental property’) situated in a nearby regional town, which is a short distance by road from the town that the store is located in. 4. The town that the store is located in, and the town in which the prospective employee is currently occupying a rental property, are situated at locations: ● a distance of greater than 100 km from the centre point of the nearest eligible urban area with a census population of greater than 130,000 ● a distance of greater than 40 km from the centre point of the nearest eligible urban area with a census population of greater than 14,000, and ● which are not in Zone A or Zone B for income tax purposes. 5. Under a proposed arrangement (‘the arrangement’), the Company are proposing to pay, or reimburse the Employee, under a salary sacrifice arrangement, for the rent that the Employee will pay in respect of the rental property that the Employee is currently occupying and will occupy during the time that the salary sacrifice arrangement is in place with the Company. 6. The Employee currently rents the unit of accommodation through a rental property agent, and intends to continue to do so during the time that the salary sacrifice arrangement is in place. 7. The proposed salary sacrifice arrangement would only remain in place during the time that the Employee is a current employee of the Company. 8. The Employee is not an associate of the Company. 9. Neither the Employee nor the Company are an associate of the owners of the unit of accommodation that the Employee is renting. 10. During the time that the Employee will be employed by the Company, the rental property will be the Employee’s only place of residence. 11. The Company state that employers in the region have difficulty attracting staff due to the cost of housing in the area, and the difficulty in accessing the area. 12. The Company state that the (prospective) Employee may not take up employment with them if the salary package offered is not attractive enough.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 Section 20 | Fringe Benefits Tax Assessment Act 1986 Subsection 20(a) | Fringe Benefits Tax Assessment Act 1986 Subsection 20(b) | Fringe Benefits Tax Assessment Act 1986 Section 25 | Fringe Benefits Tax Assessment Act 1986 Section 58ZC | Fringe Benefits Tax Assessment Act 1986 Subsection 58ZC(1) | Fringe Benefits Tax Assessment Act 1986 Subsection 58ZC(2) | Fringe Benefits Tax Assessment Act 1986 Section 60 | Fringe Benefits Tax Assessment Act 1986 Subsection 60(2A) | Fringe Benefits Tax Assessment Act 1986 Paragraph 60(2A)(a) | Fringe Benefits Tax Assessment Act 1986 Paragraph 60(2A)(b) | Fringe Benefits Tax Assessment Act 1986 Paragraph 60(2A)(c) | Fringe Benefits Tax Assessment Act 1986 Subsection 136(1) | Fringe Benefits Tax Assessment Act 1986 Section 140 | Fringe Benefits Tax Assessment Act 1986 Subsection 140(1) | Fringe Benefits Tax Assessment Act 1986 Paragraph 140(1)(a) | Fringe Benefits Tax Assessment Act 1986 Paragraph 140(1)(b) | Fringe Benefits Tax Assessment Act 1986 Subsection 142(1A) | Fringe Benefits Tax Assessment Act 1986 Paragraph 142(1A)(a) | Fringe Benefits Tax Assessment Act 1986 Paragraph 142(1A)(b) | Fringe Benefits Tax Assessment Act 1986 Paragraph 142(1A)(d) | Fringe Benefits Tax Assessment Act 1986 Subsection 142(2E) | Fringe Benefits Tax Assessment Act 1986 Subsection 142(2E)(a) | Fringe Benefits Tax Assessment Act 1986 Subsection 142(2E)(b) | Fringe Benefits Tax Assessment Act 1986 Subsection 142(3)(aaa) | Income Tax Assessment Act 1936 Section 26AAAB | Income Tax Assessment Act 1936 Schedule 2 Question 1 | Will the payment or reimbursement by the Company, under a salary sacrifice arrangement, of an employee’s expenditure on rental payments for accommodation, be exempt from Fringe Benefits Tax (FBT) as a ‘remote area housing benefit’ in accordance with section 58ZC of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? Summary | The payment or reimbursement by the Company, under a salary sacrifice arrangement, of an employee’s expenditure on rental payments for accommodation, will not be exempt from Fringe Benefits Tax (FBT) as a ‘remote area housing benefit’ in accordance with section 58ZC of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). Detailed reasoning | Is a housing benefit provided? | 1. For the reimbursement to be a remote area housing benefit it must be a housing benefit. Section 25 of the FBTAA defines a ‘housing benefit’ as being a housing right granted by a person (the provider) to another person (the recipient). | 2. A ‘housing right’ is defined by subsection 136(1) of the FBTAA to mean a lease or license granted to a person to occupy or use a unit of accommodation to the extent that the lease or license subsists at a time when the unit of accommodation is the person’s usual place of residence. | 3. Subsection 136(1) of the FBTAA defines a ‘unit of accommodation’ to include a house, flat or home unit, and accommodation in a house, flat or home unit’. The terms ‘lease’ and ‘licence’ are not defined in the FBTAA. On their ordinary meaning, these terms would include the granting of a right to use the specified land for accommodation purposes. | 4. The Act does not specify what is meant by a ‘usual place of residence’. The definition of ‘housing right’ contemplates that a person can only have one ‘usual place of residence’ at any one time. | 5. A ‘place of residence’ of a person is defined in subsection 136(1) of the FBTAA 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. | 6. Although the Act does not specify what amounts to a ‘usual place of residence’, it is an important concept. In the context of the definition of ‘place of residence’, it can be taken as meaning habitual or customary. While there may generally be no problem in establishing an employee's ‘usual place of residence’, problems can arise in establishing ‘usual place’ where there is a choice between two places of residence. | Application to your circumstances | 7. Based on the facts provided, the Company are proposing to pay, or reimburse the Employee, under a salary sacrifice arrangement, for the rent that the Employee will incur in respect of the rental property (currently rented by the Employee directly from an unrelated third party), that the Employee is currently occupying, and will occupy during the time that the salary sacrifice arrangement is in place with the Company. The Company does not provide the employee with a lease or licence to occupy a unit of accommodation. | 8. The proposed arrangement is not one under which the Company as a person/provider/employer is providing the Employee as a person/recipient/employee with a ‘housing right’ as defined under subsection 136(1) of the FBTAA. Therefore, under the proposed arrangement no ‘housing benefit’ arises under section 25 of the FBTAAA. | 9. Accordingly, the arrangement that the Company are proposing to enter into with the Employee will not satisfy the definition of a ‘housing benefit’ as defined in section 25 of the FBTAA. | Is the benefit provided a remote area housing benefit exempt from FBT under subsection 58ZC of the FBTAA? | 10. Under subsection 58ZC(1) of the FBTAA, a ‘housing benefit’ that is a ‘remote area housing benefit’ is exempt from FBT. The conditions for a housing benefit to be a ‘remote area housing benefit’ are set out in subsection 58ZC(2) of the FBTAA, as stipulated below. | 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:… | 11. The benefit that is proposed to be provided by the Company under the arrangement does not qualify as a ‘housing benefit’ under section 25 of the FBTAA. Accordingly, it is not able to qualify as a ‘remote area housing benefit’ under subsection 58ZC(1) of the FBTAA, on the basis that it does not meet the required condition in subsection 58ZC(2) of the FBTAA of being a ‘housing benefit’ for the purposes of section 25 of the FBTAA. | Conclusion | 12. In circumstances where the Company and the Employee enter into a housing arrangement as described above, a ‘housing benefit’ is not provided pursuant to section 25 of the FBTAA. | 13. As per the discussion above, under the proposed arrangement, each of the conditions for a benefit in relation to housing to constitute a ‘remote area housing benefit’ – as set out in subsection 58ZC(2) of the FBTAA – are not satisfied. | 14. Therefore, the provision of a benefit in relation to housing by the Company to the Employee under the proposed arrangement will not be exempt from FBT under section 58ZC of the FBTAA. | Question 2 | Will the taxable value of an expense payment benefit resulting from the payment or reimbursement by the Company, under a salary sacrifice arrangement, of an employee's expenditure on rental payments for accommodation, be reducible in accordance with subsection 60(2A) of the FBTAA? | Summary | The taxable value of an expense payment benefit resulting from the payment or reimbursement by the Company, under a salary sacrifice arrangement, of an employee's expenditure on rental payments for accommodation, will not be reducible in accordance with subsection 60(2A) of the FBTAA, as all of the conditions in subsection 60(2A) of the FBTAA will not be satisfied. | Detailed reasoning | Is an expense payment benefit provided? | 1. Expense payment benefits are defined in section 20 of the FBTAA as follows: | 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. | 2. A payment made by the Company in discharge or reimbursement of rent under a salary sacrifice agreement on behalf of the Employee for rent that the Employee has incurred to an unrelated third party will constitute an expense payment benefit pursuant to subsection 20(a) or 20(b) of the FBTAA. | Is the taxable value of an expense payment benefit (in relation to rent) reducible? | 3. Subsection 60(2A) of the FBTAA provides that the taxable value of an expense payment benefit shall be reduced by 50% where the following conditions apply: | Where: | (a) the recipient of an expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer; | (b) the recipient’s expenditure is in respect of remote area housing rent connected with a unit of accommodation; | (c) the recipient occupied or used the unit of accommodation as his or her usual place of residence during a period (in this subsection called the “occupation period”) during which the rent accrued; and | (d) the fringe benefit was not provided 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; | the amount that, but for this subsection, would be the taxable value of the fringe benefit in relation to the year of tax shall be reduced by 50% of so much of the recipient’s expenditure as relates to the occupation period. | 4. In order to determine whether the amount of a payment or reimbursement by the Company under a salary sacrifice agreement on behalf of or to the Employee for rent that the employee has incurred to an unrelated third party will be reducible, a discussion is provided below in respect of whether each element or condition in subsection 60(2A) of the FBTAA will be satisfied. | Paragraph 60(2A)(a) of the FBTAA | 5. Based on the facts provided, the recipient of the expense payment benefit (as provided by the Company) under the arrangement will be an employee of the Company. | 6. Therefore, the condition in paragraph 60(2A)(a) of the FBTAA will be satisfied. | Paragraph 60(2A)(b) of the FBTAA | 7. In determining whether the amount of a payment made in discharge, or reimbursement of, rent under a salary sacrifice agreement on behalf of the Employee, for rent that the Employee has incurred to an unrelated third party is ‘in respect of a remote area housing rent connected with a unit of accommodation’, it is necessary to consider subsection 142(1A) of the FBTAA which sets out the requisite conditions. | 8. Subsection 142(1A) of the FBTAA is set out below: | In this Act, a reference, in relation to a year of tax in relation to an employee of an employer, to remote area housing rent connected with a unit of accommodation is a reference to rent or other consideration payable in respect of the subsistence of a lease or licence in respect of the unit of accommodation where: (a) during the whole of the period (in this subsection referred to as the “occupation period”') in the year of tax when the employee occupied or used the unit of accommodation as his or her usual place of residence: | (i) the unit of accommodation was situated in a State or internal Territory and was not at a location in, or adjacent to, an eligible urban area; and | (ii) the employee was a current employee of the employer and the usual place of employment of the employee was not at a location in, or adjacent to, an eligible urban area; | (b) the common conditions set out in subsection (2E) are satisfied in relation to the occupation period; and | (c) (Omitted by No 95 of 1988) | (d) the lease or licence was not granted 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 section 60. | Paragraph 142(1A)(a) of the FBTAA | 9. Based on the facts provided, under the proposed arrangement, the individual occupying the unit of accommodation (proposed employee) will be an employee of the Company and occupy the accommodation as their ‘usual place of residence’. | 10. Pursuant to paragraph 140(1)(a) of the FBTAA, an ‘eligible urban area’ is an area that is either: | ● situated in Zone A or Zone B for income tax purposes (as described in Parts I and II respectively in Schedule 2 to the Income Tax Assessment Act 1936 (ITAA 1936)) and is an urban centre with a 1981 census population of not less than 28,000, or ● not situated in Zone A or Zone B for income tax purposes and is an urban centre with a 1981 census population of not less than 14,000. | 11. Pursuant to paragraph 140(1)(b) of the FBTAA, a location that is adjacent to an eligible urban area is a location that: | ● was situated less than 40 kilometres, by the shortest practicable surface route, from the centre point of an eligible urban area with a census population of less than 130,000; or | ● was situated less than 100 kilometres, by the shortest practicable surface route, from the centre point of an eligible urban area with a census population of not less than 130,000. | The ATO used to produce lists of remote and non-remote towns for the purposes of subsection 140(1) of the FBTAA in Law Administration Practice Statement PS LA 2000/6 Fringe benefits tax: what is considered to be remote for the purposes of the remote area housing benefit . However, that Practice Statement was withdrawn on 11 June 2013, as the ATO now maintains a list of eligible urban areas on its website. | The town that the store (which will be the usual place of employment under the arrangement), and the town in which the prospective employee is currently occupying a rental property (which will be the unit of accommodation under the arrangement), are situated at locations which are not within ‘eligible urban areas’ and are: | ● a distance of greater than 40 km from the centre point of the nearest eligible urban area with a 1981 census population of less than 14,000 | ● a distance of greater than 100 km from the centre point of the nearest eligible urban area with a 1981 census population of not less than 130,000,and | ● not in Zone A or Zone B for income tax purposes. | 14. Accordingly, the requirements in paragraph 142(1A)(a) of the FBTAA will be satisfied. | Paragraph 142(1A)(b) of the FBTAA | 15. Paragraph 142(1A)(b) of the FBTAA requires that ‘the common conditions set out in subsection 142(2E) are satisfied in relation to the occupation period’. | 16. The ‘common conditions’ as set out in subsection 142(2E) of the FBTAA are iterated below: | For the purposes of the application of this section to a fringe benefit in relation to a year of tax in relation to an employee of an employer, the common conditions in relation to a particular period or in relation to a particular time are as follows: | (a) it is customary for employers in the industry in which the employee was employed during that period or at that time, as the case may be, to provide housing assistance for their employees; | (b) it would be concluded that it was necessary for the employer, during the year of tax, to provide or arrange for the provision of housing assistance 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; | (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 employee was employed during that period or at that time, as the case may be, to provide housing assistance for their employees. | 17. The first of the common conditions set out in paragraph 142(2E)(a) of the FBTAA is that: | (a) it is customary for employers in the industry in which the employee was employed during that period or at that time, as the case may be, to provide housing assistance to their employees; | 18. Under paragraph 142(3)(aa) of the FBTAA references to ‘housing assistance’ include ‘the making of payments in discharge or reimbursement of rent or other consideration incurred by a person in respect of the subsistence of a lease or licence in respect of a unit of accommodation’. | 19. Taxation Determination TD 94/97 Fringe benefits tax: what does the phrase 'customary for employers in the industry' mean in relation to the provision of fringe benefits to employees? explains the ATO view of the meaning of the phrase 'customary for employers in the industry' in relation to the provision of fringe benefits to employees. | 20. Paragraph 2 of TD 94/97 states: | A benefit will be accepted as being customary in the industry where it is normal for employees of that class or job description in the industry to be provided with the same or similar benefits. It is not necessary that all or even the majority of employees in the industry receive the benefit. Where the provision of the benefits is unique, rare or unusual within an industry it would not be accepted as being customary. | 21. The Commissioner has not issued a list of industries in which it would be considered customary for employers to provide housing assistance. | 22. However, the now withdrawn Taxation Ruling IT 67 Subsidised housing benefits provided examples of classes of employees whose employers would meet this requirement. IT 67 provided guidance on the former section 26AAAB of the Income Tax Assessment Act 1936 which provided concessional treatment for subsidised housing in remote areas for employees where it was customary for employers in the particular industry to provide employees with free or subsidised accommodation. | The examples listed were as follows: | ● miners | ● sugar mill employees | ● bank employees | ● police | ● prison employees | ● school teachers | ● hospital employees | ● farm workers | ● hotel and motel staff, and | ● civil engineering workers, e.g. on bridge or dam works. | 23. For housing assistance to be customary the need for the assistance would arise from the nature of the employment or the conditions under which the person is employed. For example, housing assistance would be customary in occupations which require employees to live at or near a work site or where employees could be directed by the employer to perform their duties at a new location. | 24. The Company falls within the ANZIC Code (a categorisation recognised to be a recognised industry classification system by the ATO – refer TD 94/97, paragraph 3) of Retail Trade - Gift Shop (4279). | 25. Employees working in retail trade are not employed in such circumstances and it is not normal, common or usual for employees in the retail trade industry to be provided with housing assistance. Therefore, regardless of what is occurring in other industries located in the region, it is not customary in the retail trade industry for employers to provide employees of any class or job description with housing assistance. | 26. Therefore the condition in paragraph 142(2E)(a) of the FBTAA will not be satisfied in respect of an expense payment fringe benefit provided to an employee of the company. | 27. This means that the common conditions in subsection 142(2E) of the FBTAA will not be satisfied and any expenditure incurred by the employee in relation to rent on the rental property will not meet the requirements of subsection 142(1A) of the FBTAA so as to qualify as ‘remote area housing rent connected with a unit of accommodation’. | 28. As any expense incurred on rent by the Employee will not qualify as ‘remote area housing rent connected with a unit of accommodation’ under subsection 142(1A) of the FBTAA, all of the conditions in subsection 60(2A) of the FBTAA will not be met. Therefore, under the proposed arrangement the Company will not be entitled to reduce the taxable value of any expense payment fringe benefits that the Company provides to the Employee in relation to remote area housing rent under subsection 60(2A). | Conclusion | 29. A payment made by the Company in discharge or reimbursement of rent under a salary sacrifice agreement on behalf of the Employee for rent that the Employee has incurred to an unrelated third party will constitute an expense payment benefit pursuant to subsection 20(a) or 20(b) of the FBTAA. | 30. Under the proposed arrangement, the conditions in paragraph 142(1A)(a) of the FBTAA, in relation to the Employee being an employee of the Company during the relevant period, the unit of accommodation being the employee’s ‘usual place of residence’, and the unit of accommodation and usual place of employment not being at a location in, or adjacent to, an eligible urban area, will be satisfied. | 31. However, as the common conditions in paragraph 142(2E)(a) of the FBTAA will not be satisfied under the proposed arrangement (as discussed above), the requirement under 142(1A)(b) of the FBTAA will not be met, and therefore the requirement under paragraph 60(2A)(b) of the FBTAA that the recipients expenditure be in respect of ‘remote area housing rent connected with a unit of accommodation’ will not be met. Consequently, as all of the conditions under subsection 60(2A) of the FBTAA will not be satisfied, the taxable value of any expense payment benefit in relation to remote area housing rent under the proposed arrangement will not be reducible pursuant to subsection 60(2A) of the FBTAA.