Member Q&A – Should we pay an employee accommodation allowance in a remote area?

Question

As part of the total remuneration package to an employee, we are looking to pay an accommodation allowance direct to the employee. We are based in a remote area as is the accommodation which will be rented by the employee and become the employees usual place of residence/main residence. Will this allowance qualify as exempt from FBT under the remote housing concessions?

Answer

“Remote area housing” benefits such as housing loans, housing loan interest, housing rent etc provided in connection with the usual place of residence of an employee living in a remote area are subject to a 50% reduction in taxable value.

For a remote area housing rent arrangement to benefit from this reduction, the benefit must be provided in the form of an expense payment fringe benefit. In other words, you as the employer must pay the rent (or a portion thereof) or reimburse the employee for their rental (or a portion thereof). If you were to pay/reimburse up to 50% of the employees rent expense the way the reduction works will result in no FBT being payable.

If you simply pay the employee an allowance to compensate them for their rental costs, the concern is the ATO may treat this simply as an assessable allowance to the employee. It is strongly recommended therefore that the arrangement be structured as a reimbursement rather than an allowance. Refer Taxation Ruling TR 92/15 for a discussion on the distinction between the two.

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