FBT – Remote area housing concessions (Part 2 of 3)

In part one of this series published last month,  we focused on some fundamental remote area concepts. In this second article in our series covering the various remote area housing exemptions and concessions we will cover the following specific concessions contained in the Fringe Benefits Tax Assessment Act 1986 (‘FBTAA’):

1. Remote area housing loan
2. Remote area mortgage interest
3. Remote area rent
4. Remote area residential fuel

Remote area housing loan

Section 60(1) of the FBTAA deals with a benefit in the form of an interest-free or low-interest housing loan provided by an employer to their employee.

Section 60(1) must be read with section 141 which sets out the requirements for a ‘housing loan’ and section 142 which sets out the conditions for a ‘remote area housing loan’.

A housing loan for this purpose as defined, in subsection 141(1) of the FBTAA, is essentially a loan used to purchase a property, or for constructing a new home provided that the loan is used wholly for these purposes.

A remote area housing loan is essentially a housing loan that must meet all the following requirements – refer section 142 of the FBTAA:

• The dwelling concerned must be in a remote area for the occupation period — i.e. for the whole time during the year concerned when the dwelling was occupied or used by the employee recipient of the loan
• During that same period the employee recipient of the loan must be a current employee of the employer and his/her usual place of employment must be in a remote area
• The common conditions set out in section 142(2E) of the FBTAA must be satisfied while the employee is using the dwelling as his usual place of residence:
  • it is customary in the particular industry for employers to provide housing assistance to employees; and
  • it is necessary for the employer to provide or arrange housing assistance for employees for the following reasons:
    • the nature of the employer’s business is such that employees are liable to frequent movement from one residential location to another;
    • in the area in which the employee is employed there is not sufficient suitable residential accommodation otherwise available; or
    • because of the custom in the employer’s industry to provide housing assistance to employees.
  • The loan concerned must not have been made on other than arm’s length terms and must not have been made in order to gain the benefit of a concession under section 60 of the

The recipient of the loan fringe benefit must be an employee, not an associate of an employee or a third party. Further, there must be a period during the year for which a reduction is claimed when all the following occurred together:

• the loan giving rise to the loan fringe benefit was a remote area housing loan and the recipient was an employee
• the dwelling connected with the loan was occupied by the employee as his usual place of residence
• the employee remained liable to repay all or part of the loan.

Effectively, the period during the year when these occurred together is the ‘occupation period’.

The effect of section 60(1) is to reduce what would otherwise be the taxable value of the loan fringe benefit for the ‘occupation period’ by 50%. If the occupation period does not cover the whole tax year, then the taxable value of the loan fringe benefit for the period that it does cover must be separately identified and the reduction applied to that part.

Remote area mortgage interest

The effect of section 60(2) of the FBTAA is to reduce what would otherwise be the taxable value of an expense payment fringe benefit in relation to interest on a remote area housing loan.

Where the necessary conditions are met, a 50% reduction of the taxable value is available to the employer.

Example

An employee is an owner occupier and incurs $24,000 in mortgage interest for the FBT year. The employer reimburses this interest expenditure.

In this case the taxable value of the benefit provided is $12,000 being 50% of the reimbursement amount of $24,000.

If the amount of expenditure reimbursed to the employee was $12,000, the taxable value remaining after the application of section 60(2) is $6,000 being 50% of $12,000.

Remote area rent

The effect of section 60(2A) of the FBTAA is to reduce what would otherwise be the taxable value of an expense payment fringe benefit in relation to remote area rent incurred by an employee.

In relation to rent paid for a dwelling located in a remote area the following requirements as outlined in section 142(1A) of the FBTAA must all be met:

• the unit of accommodation must be in a remote area when it was occupied by the employee
• at the time he/she occupied the unit, the employee was a current employee of the employer and his/her usual place of employment was in a remote area
• the common conditions set out in section 142(2E) of the FBTAA must be satisfied during the period the employee occupies the dwelling as his/her principal place of residence
• the lease or licence must not have been provided on other than arm’s length terms and must not have been provided in order to gain the benefit of a concession under section 60 of the FBTAA

Unlike the 50% reduction in the taxable value available for remote area mortgage interest, the 50% reduction in respect of housing rent in section 60(2A) is based on the amount of rent paid/incurred by the employee rather than the taxable value of the benefit.

A consequence of this different treatment is that if an employee contributes 50% of the cost of housing rent no FBT will be payable by the employer since the 50% reduction applies on the gross amount of the benefit before deducting the employee contribution. Whereas, if an employee contributes 50% of the cost of other categories of remote area benefits in section 60, fringe benefits tax will be payable on 25% of the benefit provided.

Example

An employee incurs weekly rent of $500 of which the employee pays directly to their landlord according to their rental agreement. The employer reimburses an amount equal to half of this weekly rent expenditure being $250,

For the employer, the starting point is a taxable value of $250 per week which is equal to the amount of the weekly reimbursement from the employer. The reduction in this taxable value afforded by section 60(2A) is $250 being 50% of the weekly rental expenditure of $500 incurred by the employee. As such, the taxable value is zero and no additional FBT cost arises.

If the employer were to reimburse $500 to the employee, then the taxable value of the benefit would be $250 and FBT would be payable accordingly.

Remote area residential fuel

There is a 50% reduction in taxable value for expenditure on remote area residential fuel to an employer under section 59 of the FBTAA where the employee is:

1. Provided with a remote area housing benefit,
2. Has an obligation to repay a remote area housing loan, or
3. Has an obligation to pay remote area housing rent.

Residential fuel is any form of fuel (e.g. electricity, gas, firewood) used for domestic purposes and it can be provided by the employer in the form of an expense payment fringe benefit, a property fringe benefit or a residual fringe benefit. Note that water provided to an employee is not considered residential fuel.

Next edition we will conclude our remote area housing series by exploring the following benefits:

1. Remote area property
2. Remote area property expense payment
3. Remote area residential property option fee
4. Remote area residential property repurchase consideration

In the next article of our ‘remote area’ trilogy (see next month’s newsletter) we will examine the “great unknowns” focusing on remote area housing property and option/repurchase consideration arrangements.

This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.