My recent article on farm vehicles and FBT created some great feedback from many in the industry, mainly along the lines of; “it’s about time you addressed a topic that is such a headache for the breeding and racing industry!”.

In the course of this feedback there emerged another nasty FBT topic I was strongly encouraged to address; housing benefits and FBT.

So here I am about to do a deep dive into a topic that is so relevant to rural based racing, breeding and general primary production operations. Similar to providing car benefits, providing housing to employees in rural Australia is crucial to attracting employees.

There are important exemptions available to employers proving housing benefits in designated “remote areas”, so I’m hoping this article also brings some welcome news to many of you.

1. WHAT IS A HOUSING BENEFIT?

A housing benefit will only have a taxable value if it is not exempt and is a housing fringe benefit. Also considered in this article is the distinction between a housing benefit and a “Living Away from Home” (LAFH) allowance.

A housing benefit is the subsistence, during the whole or part of an FBT year (1 April to 31 March), of a housing right granted by one person (the provider/employer) to another person (the recipient/employee). A “housing right” is defined in to mean a lease or licence granted to a person to occupy or use a unit of accommodation at a time when the accommodation is the person’s usual place of residence.

2. UNIT OF ACCOMMODATION REQUIRED FOR A HOUSING FRINGE BENEFIT

The lease or licence must be granted to “occupy or use” a unit of accommodation.

A unit of accommodation includes:

• a house, flat or home unit;

• accommodation in a house, flat or home unit;

• accommodation in a hotel, hostel, motel or guesthouse;

• accommodation in a bunkhouse or any living quarters;

• accommodation in a ship, vessel or floating structure; and

• a caravan or other mobile home.

The definition of unit of accommodation is wide, general and inclusive, so that all forms of accommodation reasonably imaginable are included. However, a housing benefit will only arise where the unit of accommodation is the “usual place of residence” of person occupying or using it (see below).

The requirement that the lease or licence is to “occupy or use” a unit of accommodation is to be noted. This is because it is difficult to envisage a situation in which an employee could use a unit of accommodation as a usual place of residence without occupying it. However, the reference to “use” would appear to be necessary to ensure that facilities, such as a swimming pool or tennis court, associated with the unit of accommodation are included when determining the taxable value of a housing fringe benefit.

3. ACCOMMODATION MUST BE THE PERSON’S USUAL PLACE OF RESIDENCE FOR A HOUSING FRINGE BENEFIT

The unit of accommodation must be the person’s usual place of residence during the period that the lease or licence subsists.

A “place of residence” means:

(a) a place at which a person resides; or

           (b) a place at which the person has sleeping accommodation

whether on a permanent or temporary basis and whether or not on a shared basis.

There is no statutory definition of “usual place of residence” but in the context of the definition of “place of residence” (see above) it should be taken as meaning habitual or customary. Accordingly, a person can only have one usual place of residence at any one time even though this may only be for a short time.

There is generally no problem in establishing an employee’s usual place of residence if the employee only has one place of residence. However, problems may arise in establishing the employee’s usual place of residence if there is a choice between two places of residence.

The ATO’s views are outlined in  Fringe benefits tax: a guide for employers which examines the term “usual place of residence” in the context of living-away-from-home allowances.

As a general test, the ATO considers that an employee is living away from the employee’s usual place of residence if the employee would have continued to live in a particular place, but for having to change residence in order to work temporarily for the employer at another locality, and expects or intends to return to that place when the temporary period is over.

This “usual place of residence” is a complex concept, so let me share some examples for clarification:

Example 1

An employee who works on a ship on a six-weeks-on/six-weeks-off basis will have sleeping accommodation amounting to a place of residence on the ship. It would also amount to a unit of accommodation. The employee also has a permanent residence at which the employee resides during the six weeks off the ship. The employee’s usual place of residence will be the permanent residence at which the employee resides during the six weeks off the ship.

Example 2

An employee transferred to a branch of the employer’s business in another State (say a stud farm employee whose employer has farms across various states) for a two- or three-year term, on the basis of return to the previous permanent position at the end of that time, would be regarded as living away from the employee’s usual place of residence provided there is an intent to return there at the end of the transfer term. Thus, any accommodation provided by the employer for the transfer term would not be a housing benefit (although it may be a residual benefit).

Generally, a person’s usual place of residence is near where the employee is permanently employed. If an employee’s place of employment changes, and the employee moves as a consequence, that would not be living away from the employee’s usual place of residence even if the new accommodation was temporary pending the obtaining of suitable long-term accommodation.

Example 3

An employee, a resident of Sydney, obtains a job for two years at racing stables in a remote part of Western Australia. The employee decides to “sell up” in Sydney, intending to move permanently to Western Australia to live. Such an employee would not be regarded as living away from the employee’s usual place of residence because of the abandonment of the former place of residence. Thus, any accommodation provided by the employer on the Western Australia site would be a housing benefit.

Employees in occupations which require regular transfers from one location to another, e.g., stud farm employees, police officers, bank employees or school teachers, will generally be regarded as living at their usual place of residence if they live near the current workplace, even if they own a house elsewhere in which they eventually intend to reside.

Employees with a transitory lifestyle, for example, who move from one temporary job site to the next, will have a usual place of residence wherever they happen to sleep at night.

The usual place of residence of a person’s spouse and family is not necessarily the usual place of residence of the employee. However, if an employee lived in a house with the employee’s family except when living in the employer’s accommodation for work purposes, in such a way that the house could be regarded as the employee’s family home, it is suggested that the house would remain the employee’s usual place of residence while living away in the employer’s accommodation.

Although a person may have a place of residence on a temporary basis, the use of the word “usual” in the definition of “housing benefit” indicates an element of permanence or normality. It is suggested that, while an employee may spend considerable periods of time occupying the employer’s accommodation, this need not of itself make it the employee’s usual place of residence, provided the employee can point to some other accommodation that is. The scheme of the FBT rules appears to be that, if an employee has accommodation which the employee can reasonably point to as a usual place of residence, then it will not cease to be so merely because the employee periodically occupies accommodation of the employer for employment purposes.

4. BENEFITS THAT ARE NOT HOUSING BENEFITS

A housing benefit is to be distinguished from a living-away-from-home (LAFH) allowance benefit.

Living-away-from home allowance benefit

A living-away-from-home (LAFH) allowance benefit is a cash allowance paid to compensate an employee for additional non-deductible expenses and other disadvantages (if any) of having to live away from their usual place of residence. A LAFH allowance may include both an accommodation and meal component. However, the accommodation component may be provided as an expense payment benefit or a residual benefit.

FBT valuation of living-away-from-home allowances

For an employee that maintains a home in Australia, and has provided a declaration to the employer to that effect, the taxable value of a LAFHA is generally determined using the following formula:

The effect of the formula is that taxable value of the allowance is the excess of the allowance over:

• the amount required to compensate the employee for the cost of accommodation while away from home (the exempt accommodation component) — this will generally be the actual cost of accommodation. Thus, the accommodation component will not be subject to tax; plus
• the amount required to compensate the employee for the increased cost of food (the exempt food component).

5. EXEMPT HOUSING BENEFITS – REMOTE AREAS

There are no specific exemptions for housing benefits. However, miscellaneous exemptions are available for certain remote area housing benefits. Many racing and breeding businesses are located within ATO designated “remote areas”, thus this should be essential reading for many of you.

Remote area housing benefits are FBT exempt

A housing fringe benefit provided in a remote area is an exempt benefit.

To qualify for the exemption the following conditions must be satisfied:

1. A housing benefit is provided to an employee.

2. The housing benefit accommodation is located in a remote area.

3. The employee must be employed in the remote area.

4. The accommodation must be provided due to the nature of the employer’s business, insufficient residential accommodation or due to custom in the employer’s industry.

5. The housing right is not provided pursuant to a non-arm’s length arrangement or for the purpose of obtaining the exemption.

I will specifically comment on the most relevant points 2 and 3 above.

Accommodation must be located in a remote area

During the whole of the tenancy period the unit of accommodation must be located in Australia but not in, or adjacent to, an eligible urban area (e.g., Melbourne or Sydney).

A “unit of accommodation” includes most forms of accommodation, and an “eligible urban area” is explained at FBT law. Towns that are not in, or adjacent to, an eligible urban area are in a remote area.

Employee must be employed in the remote area

During the whole of the tenancy period the recipient must be a current employee of the employer and his/her usual place of employment must not be at a location in, or adjacent to, an eligible urban area.

ATO guidance – what is a “remote area”?

A location will be a remote area if it satisfies one of the following definitions.

Remote areas within Zone A or Zone B

A location within ATO designated Zone A or Zone B is a remote area if it is:

• at least 40 km from an urban centre with a population of at least 28,000 but less than 130,000, and

• at least 100 km by the “shortest practical surface route” from an urban centre with a population of 130,000.

If you want to avoid the “hack work” to determine what is an exempt remote area in Australia I refer you to this ATO link Fringe benefits tax – remote areas | Australian Taxation Office (ato.gov.au)

6. VALUATION OF HOUSING BENEFITS

There are two valuation methods available for the valuation of housing benefits.

1. Market value method

Under the market value method, the value of a housing benefit is the market value of the accommodation for the time that it is occupied during the year less any rent or other consideration (reimbursement) paid by the employee.

2. Statutory annual value

A statutory annual value of a housing benefit can be used as an alternative to the market value method. Under this method, the market value is determined in the first year that the accommodation is used to provide a housing fringe benefit. In subsequent years the value for the preceding year is indexed in accordance with the CPI rent sub-group for the capital city of the State or Territory in which the accommodation is situated. The indexation factors for each year are released annually in an ATO taxation determination.

As noted above, any rent paid by the employee is deducted from the statutory annual value determined.

Please do not hesitate to contact the writer if you wish for me to clarify or expand on any of the matters raised in this article.

PAUL CARRAZZO CA

CARRAZZO CONSULTING PTY LTD

801 Glenferrie Road, Hawthorn, VIC, 3122

TEL:   (03) 9982 1000

FAX:   (03) 9329 8355

MOB:  0417 549 347

E-mail: paul.carrazzo@carrazzo.com.au

Web: www.carrazzo.com.au