Issue
Whether the provision of housing benefits by the employer to a new employee under a salary sacrifice arrangement where the housing is located in a remote area, will invoke the application of subparagraph 58ZC(2)(e)(ii) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
Decision
No, the recipient's overall housing right was not granted to an employee under an arrangement for the purpose of obtaining the benefit of the exemption provided by section 58ZC of the FBTAA. The arrangement was implemented to enable the employer to provide the benefit of housing to its employee as an ordinary business requirement of the employer.
Facts
An employer has a workplace located in a remote area as described in Practice Statement Law Administration PS LA 2000/6.
It is customary for employers in the employer's industry to provide subsidised residential accommodation for their employees.
The employer engages a new employee. On engagement the employee enters into a salary sacrifice arrangement with the employer where the employee agrees to forego part of his or her total remuneration that he or she would otherwise expect to receive as salary or wages, in return for the employer providing a house with a similar rental value. The salary sacrifice arrangement is an 'Effective SSA' as described in Taxation Ruling TR 2001/10 Income tax : fringe benefits tax and superannuation guarantee : salary sacrifice arrangements .
The employer obtains a lease over a residential property from the owner of the property at the market rental. The terms of the lease allow the employer to make the house available to an employee as a residence.
The property is located in a remote area as described in PS LA 2000/6.
The employer grants the employee a lease or licence to occupy or use the house as the employee's usual place of residence.
Reasons for Decision
When an employer provides a housing benefit to its employee in a remote area and the requirements of section 58ZC of the FBTAA are satisfied, the housing benefit is a 'remote area housing benefit' which is an 'exempt benefit'.
Subparagraph 58ZC(2)(e)(ii) of the FBTAA provides conditions which if satisfied will deny the exemption otherwise available under section 58ZC of the FBTAA. Subparagraph 58ZC(2)(e)(ii) provides that: (e) the recipients overall housing right was not granted to the recipient under: (i) .... (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.
'Recipients overall housing right', 'arrangement' and 'housing right' are defined in subsection 136(1) of the FBTAA: "recipients overall housing right" , in relation to a housing fringe benefit in relation to a year of tax, means the housing right to which the fringe benefit relates, including that housing right as it subsisted, or will subsist, outside the year of tax. "arrangement" means: (a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, or intended to be enforceable, by legal proceedings; and (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. "housing right" , in relation to a person, means a lease or licence granted to the person to occupy or use a unit of accommodation, insofar as that lease or licence subsists at a time when the unit of accommodation is the person's usual place of residence.
Under subparagraph 58ZC(2)(e)(ii) of the FBTAA, the granting of the 'recipients overall housing right' to the recipient under an 'arrangement' refers to the granting of the lease or licence to the employee to use the house or unit of accommodation as the usual place of residence under an arrangement, scheme or undertaking.
Subparagraph 58ZC(2)(e)(ii) of the FBTAA requires that the parties to the arrangement enter into the arrangement for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of the section.
In Newton v. Federal Commissioner of Taxation (1958) 98 CLR 1; (1958) 11 ATD 442; (1958) 7 AITR 298, the Privy Council examined the meaning of the word 'purpose'.
Lord Denning said at page number CLR 8; ATD 445; AITR 304, The word "purpose" means, not motive, but the effect which is sought to achieve - the end in view.
Lord Denning also said (at the same page), In order to bring an arrangement within the section, you must be able to predicate by looking at the overt acts by which it was implemented that it was implemented in that particular way so as to avoid tax. If you cannot so predicate, but have to acknowledge that the transactions are capable of explanation by reference to ordinary business or family dealing, without necessarily being labelled as a means to avoid tax, then the arrangement does not come within the section.
In this arrangement which provides or grants the 'recipient's overall housing right', the arrangement is entered into by each of the parties for the purpose of enabling the employer to provide the benefit of housing to its employee. There are no overt acts by which one could predicate that the arrangement has been implemented by any of the parties for the purpose of allowing the employer to enjoy the benefits of the tax exemption. The arrangement can be explained as being one of ordinary business dealings as is customary in the employer's industry.
Accordingly, the recipient's overall housing right was not granted to an employee under an arrangement described in subparagraph 58ZC(2)(e)(ii) of the FBTAA. Subparagraph 58ZC(2)(e)(ii) is not satisfied.