Salary sacrifice of home purchase costs in a relocation scenario for a new employee

We had a very interesting question posed to us through the Member Q&A concerning the proposal for a new employee to salary sacrifice the costs associated with purchasing a home at their new employment location.

The basic background facts were as follows:

The member’s question was whether fringe benefits tax (‘FBT’) would be payable on the payment/reimbursement of these incidental purchase costs?

Concession under Section 58C of the FBTAA

Section 58C of the Fringe Benefits Tax Assessment Act 1986 (‘FBTAA’) provides a concession that allows certain relocation benefits to be exempt from FBT when they are provided to an employee who is required to change their usual place of residence to perform their employment duties. In essence, if an employer reimburses an employee for expenses that are incidental to either the sale of a current dwelling or the acquisition of a new one, and all the prescribed conditions are met, the benefit can be treated as an FBT‐exempt benefit.

For the exemption to apply the pre-conditions set out in subsection 58C(1) of the FBTAA must be satisfied. These conditions are:

1. The employee or their associate must hold a prescribed interest in land, a stratum unit, or a proprietary right in a dwelling during the “former home holding period”.
2. The employee or associate must sell or propose to sell the property solely because they are required to change their usual place of residence to perform their employment duties.
3. The employer must notify the employee during the former home holding period that they are required to perform duties at a new place of employment.
4. At the time of notification, the employee must occupy or propose to occupy the dwelling as their usual place of residence.

The term “prescribed interest” in section 58C is used in the context of:

• Land on which there is a dwelling
• A stratum unit in relation to a dwelling
• A proprietary right in respect of a dwelling, such as a flat or home unit

The legislation and ATO guidance consistently refer to ownership interests—such as freehold, leasehold (in the sense of long-term legal interests in land, not short-term residential leases), or strata title—not to mere rights of occupancy under a standard rental lease.

Our concern for the member was with the employer notification requirement in condition 3 and the occupation requirement in condition 4.

The individual sold their Brisbane home prior to being notified that they would be required to relocate to Far North Queensland. As such, they were not notified during the “former home holding period” to relocate. As they did not hold a prescribed interest in a dwelling at that time pre-conditions 3 & 4 above are not met.

Our advice to the member was to consider submitting an ATO private ruling and we would encourage other members to do so too when looking at applying this concession as it is quite a complex provision and more often than not the dollars involved can be quite large.

The ruling process provides certainty to both parties.

TaxEd is a registered tax agent, and is able to provide tax advice/assist with private rulings. If you need advice in relation to this topic or any other topic, please feel free to contact us on 1300 607 478 or via our website.

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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.