Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 7 - Remote area housing
Overview
7.1 The amendments in Schedule 7 of this Bill will amend the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to exempt from fringe benefits tax (FBT) housing fringe benefits provided by primary producers in remote areas in respect of primary production employment.
Summary of the amendments
7.2 The amendments will exempt from FBT a benefit that would otherwise be a remote area housing fringe benefit where the benefit is provided by a primary producer to an employee in respect of the employee's employment in primary production. The taxable value of fringe benefits relating to residential fuel for use in housing covered by this exemption will continue to receive concessional treatment.
7.3 These amendments will apply to assessments for the FBT year beginning 1 April 1997 and later FBT years. [Item 3]
Background to the legislation
7.4 A housing fringe benefit arises under Division 6 of Part III of the FBTAA if an employee is provided with the right to use a unit of accommodation as the employee's usual place of residence. Housing fringe benefits provided to employees in remote areas are called 'remote area housing fringe benefits'. Remote area housing fringe benefits receive concessional treatment. Fringe benefits arising from the supply of free or subsidised residential fuel for use in accommodation provided as a remote area housing fringe benefit also receive concessional treatment. These concessions are described in more detail below.
What is a remote area housing fringe benefit?
7.5 In broad terms, a housing fringe benefit is a remote area housing fringe benefit under subsection 29(4) if the following conditions are satisfied:
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- the accommodation is in a remote area;
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- the accommodation is occupied by an employee whose usual place of employment is in a remote area;
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- it is customary in the industry for employers to provide free or subsidised residential accommodation to employees; and
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- it is necessary for the employer to provide free or subsidised accommodation for employees for any of the following reasons:
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- the nature of the employer's business is such that employees are likely to move frequently from one residential location to another;
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- there is insufficient suitable accommodation available in the area; or
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- it is customary in that industry for employers to provide free or subsidised accommodation.
7.6 Accommodation is in a remote area if it is not near an eligible urban area. To satisfy this test, accommodation must be at least 40 kilometres from a town with a population of 14,000 or more people and at least 100 kilometres from a town of 130,000 or more people. If the accommodation is in Zone A or Zone B for income tax purposes, it must be at least 40 kilometres from a town of 28,000 (rather than 14,000) or more people and at least 100 kilometres from a town of 130,000 or more people. 'Eligible urban area' is defined in section 140.
What is the concession for remote area housing fringe benefits?
7.7 The valuation rules for remote area housing fringe benefits are concessional. In broad terms, the taxable value of a remote area housing fringe benefit may be calculated by either of two methods:
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- the employer may elect to use the statutory value method set out in paragraph29(1)(a). The taxable value under this method is an indexed statutory amount that is apportioned if the benefit is provided for part of the year and reduced by the amount of any rent paid by the employee. For the 1996-97 FBT year, this amount is $1,313 per annum for shared accommodation and $5,263 per annum for other accommodation;
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- otherwise, the market value method applies under paragraphs 29(1)(b) or (c). In most circumstances, the taxable value under this method is 50% of the taxable value that would apply to a housing fringe benefit that is not a remote area housing fringe benefit. The taxable value of a housing fringe benefit is generally the actual market value or the indexed market value of the accommodation, reduced by the amount of any rent paid by the employee.
What is the concession for benefits arising from the supply of residential fuel?
7.8 Under subsection 59(1) of the FBTAA, the supply of free or subsidised fuel for use in accommodation provided in remote areas also receives concessional treatment. Where the taxable value of the remote area housing fringe benefit arising from the provision of the accommodation is calculated using the market value method, the taxable value of fringe benefits that arise from the supply of residential fuel is reduced by 50%.
7.9 On the other hand, where the taxable value of the remote area housing fringe benefit is calculated using the statutory value method, the taxable value of the fringe benefit arising from the supply of residential fuel is reduced to nil. This is because the statutory amounts include the concessional taxable value of any free or subsidised fuel.
Explanation of the amendments
7.10 A housing benefit provided by an employer engaged in primary production for the purposes of the Income Tax Assessment Act 1936 will be an exempt benefit if the benefit would otherwise have qualified as a remote area housing fringe benefit, under new section 58ZA . To qualify for exemption, the benefit must be provided to an employee of the employer's primary production business in respect of the employee's employment in the primary production business. [Item 1]
7.11 Subsection 59(1) of the FBTAA will be amended to ensure that, where an employer provides a housing benefit that is an exempt benefit under new section58ZA , the taxable value of a fringe benefit that arises from the provision of free or subsidised residential fuel will be reduced by 50%. [Item 2]
7.12 Previously, the taxable value of fringe benefits arising from the supply of residential fuel was reduced to nil if employers used the statutory value method for calculating the taxable value of remote area housing fringe benefits. This was because the statutory amounts included a component for the value of residential fuel. As explained earlier, remote area housing fringe benefits provided by primary producers are being exempted from FBT. Consequently, employers who previously used the statutory value method for calculating the taxable value of remote area housing fringe benefits will now incur a separate liability for FBT where they provide free or subsidised residential fuel.