In this, our last article of a three-part series focusing on remote area housing concessions, we focus on some of the lesser known and utilised provisions consisting of the following benefits:
- Remote area property
- Remote area property expense payment
- Remote area residential property option fee
- Remote area residential property repurchase consideration
For those who have missed Part 1 and Part 2 of the ‘great remote area trilogy’ as we call it at Taxed , the articles can be viewed at Part 1 ( September 2020 TaxEd update) and Part 2 (October 2020 TaxEd Update)
Remote area property
This concession provides for a 50% reduction in the taxable value of a property fringe benefit where the recipients property is land, or house and land that is ‘remote area residential property’.
‘Remote area residential property’ is property located in a remote area that consists of:
- land on which there is a dwelling that is used by the employee immediately after the provision of the fringe benefit as their usual place of residence, or
- land on which the employee proposes to build, or finish building, a dwelling for use as their usual place of residence.
Where the property consists of land, the Commissioner must be satisfied that the employee has made sustained reasonable efforts to:
- start building within six months of acquiring the land, and
- within 18 months of acquiring the land, use the dwelling as their usual place of residence.
Remote area property expense payment
A 50% reduction of the taxable value is available in respect of a an expense payment fringe benefit that is in respect of remote area residential property.
Expense in respect of remote area residential property?
The expenditure must be in relation to the:
- the employee’s purchase of land on which they intend to build, or complete the building of, a dwelling
- building of a dwelling on land held by the employee
- purchase of land on which there is already a dwelling, or
- extension of a dwelling on the employee’s land by adding a room or part of a room to the dwelling.
The following conditions must also be satisfied:
- If item 1 or 2 applies:
− the employee must intend to occupy the dwelling as their residence, and
the Commissioner must be satisfied that the employee made sustained reasonable efforts to start building within six months and to occupy the dwelling within 18 months after the employee incurred the expenditure.
- If item 3 or 4 applies:
− the employee must use the dwelling as their usual place of residence as soon as reasonably practicable after incurring the expenditure.
Where the remote area residential property is mortgaged by the employee, the 50% reduction can still apply as the payment or reimbursement relates to the original purchase cost of the land or property.
Example – taken from ATO FBT Guide for employers
An employee purchases a remote area residential property and pays a 10% deposit and uses a mortgage to pay for the rest. The employer agrees to reimburse the employee 20% of the original purchase price of the property. In this case, the remote area residential property benefit reduction may apply provided the other conditions are met.
If, however, the employer agreed to reimburse the employee 20% of their total loan repayments (which includes interest and other charges), the remote area residential expense payment benefit reduction would not apply. This is because the reimbursement is not wholly in respect of the purchase of the property, but rather it is in respect of the employee meeting the conditions of their mortgage. The reimbursement of interest may qualify for the remote area interest reduction above.
Remote area residential property option fee
The 50% property benefit taxable value reduction that applies under this specific concession is available where an employer provides an employee with a property fringe benefit and their property is a ‘remote area residential property option fee’.
A ‘remote area residential property option fee’ is property consisting of a fee paid to an employee in return for the employee granting the employer an option to buy an interest in land. The following conditions must be satisfied:
- the employee must hold an interest in the land to which the option relates
- the land must, at the time when the option fee was paid to the employee, either have a dwelling on it which is the employee’s usual place of residence or be land on which the employee intends to build, or complete the building of, such a dwelling
- if the employee intends to build, the Commissioner must be satisfied that they have made sustained reasonable efforts to
− commence building or start completing the construction of the dwelling within six months
− to occupy the dwelling within 18 months of the time when the option fee was paid
- the contract under which the option fee is paid must be entered into no later than when the employee obtains an interest in the land subject to the option, and the option must also be a recognised remote area housing obligation restricting the employee’s right to dispose of the interest in the land.
Remote area residential property repurchase consideration
The last of the remote area housing concessions to cover is once a gain a 50% reduction in the taxable value of a property benefit that arises where an employer provides their employee with a property fringe benefit and the property is ‘remote area residential property repurchase consideration’.
‘Remote area residential property purchase consideration’ requires that:
- the employee must hold an interest in the land to which the repurchase relates
- the land must, at the time when the repurchase consideration was paid to the employee, either have a dwelling on it which is the employee’s usual place of residence or be land on which the employee intends to build, or complete the building of, such a dwelling
- if the employee intends to build, the Commissioner must be satisfied that they have made sustained reasonable efforts to
-
- commence building or start completing the construction of the dwelling within six months
- to occupy the house within 18 months of the time when the option fee was paid
- the contract under which the repurchase consideration is paid must be entered into no later than when the employee obtains an interest in the land subject to the repurchase, and the repurchase must also be a recognised remote area housing obligation restricting the employee’s right to dispose of the interest in the land.
In regards to the last dot point above, a ‘recognised remote area housing obligation’ – which also applies to the residential property option fee reduction – is a contractual obligation, binding the employer and the employee, which restricts the employee’s ability to dispose of their interest in the relevant land other than to the employer and for a price that can be determined by reference to the contract.
The restriction must exist for a period of at least five years from:
- for a property fringe benefit in relation to ‘remote area property repurchase consideration’ – the time when the employee acquired their interest in the land
- for any other type of property fringe benefit – the time when the benefit was provided to the employee
- for an expense payment fringe benefit – the time when the expenditure was incurred by the employee.
This concession is subject to a limitation.
Where the repurchase consideration exceeds both:
- the market value of the employee’s estate or interest in the property at the time of the repurchase, and
- the ‘guideline price’ of the estate or interest at the time of the repurchase.
The 50% discount will apply only to the taxable value attributable to the guideline price.
The guideline price is, broadly, the market value of the estate or interest of the employee when the employee acquired that interest, indexed by reference to an indexation factor
The following example is based on one provided by the Treasurer in the Explanatory Memorandum to the Act introducing the provision.
Example
On 1 April 2014, an employee entered into a remote area home ownership scheme which placed restrictions on the employee’s right to deal freely with the property for five years. The market value of the house on 1 April 2014 was $58,000. On 31 March 2016, the employee resigns and the employer purchases the house for $74,000. At 31 March 2016, the market value of the house was $63,000 and the guideline price was $68,000.
The 50% discount will be limited to the benefit attributed to the guideline price, ie $68,000 − $63,000 = $5,000. The excess consideration over the guideline price (ie $74,000 − $68,000 = $6,000) does not attract the 50% discount. The taxable value of the fringe benefit is therefore:
($5,000 × 50%) + $6,000 = $8,500.
Concluding comments
The concessions covered in this final article in the series on remote area housing are more obscure than the rent and mortgage interest reductions commonly used by TaxEd members . It is our understanding these concessions are more commonly used in the mining industry, however, obviously they are not restricted to that industry.
Finally, the concessions covered in this series are subject to the following shared/common conditions:
- 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 (not applicable for section 58ZC remote area housing benefit exemption);
- 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:
- 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;
- 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
- 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.
We trust this series of articles has highlighted the main features of the various remote area housing concessions available to employers with employees living and working in remote areas.
The concessions can be complex, but we are here to help where we can so do not hesitate to send through your remote area housing queries via the member Q&A portal.