ATO Interpretative Decision

ATO ID 2001/761

Fringe Benefits Tax

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Issue

Whether the novation of an existing rental agreement for a house in a remote area, (between the employer, employee and landlord), creates the provision of an exempt remote area housing benefit under section 58ZC of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Decision

No, the novated lease between the relevant parties will not result in the provision of a remote area housing benefit which is exempt under section 58ZC of the FBTAA.

Facts

As part of salary packaging, an arrangement (being a tripartite contract involving the employee, landlord and employer) was proposed that would shift the rights and obligations of the tenancy agreement, including the obligation to make the rental payments, from the employee to the employer.

This proposal was made in recognition of the earlier decision that as an employer in a remote area, something would have to be done if it were to successfully compete for and retain its better staff.

As a result of the novation, the employer would have the right to use the unit of accommodation but allow the employee to live in it rent free until such time as the employee ceases to be in employment.

In the event of a termination of the employment of the employee, the novated lease between the employer and the landlord would be extinguished and the original rental lease between the landlord and the employee resurrected.

The employee and the employee's family have resided in the rented accommodation prior to commencing employment with the employer.

Reasons for Decision

For a remote area housing benefit to be exempt it is necessary that all of the requirements of section 58ZC of the FBTAA be satisfied.

Whilst:

(1)

the unit of accommodation and the employee's usual place of employment are not at a location in, or adjacent to an eligible urban area as explained in Practice Statement PS2000/6,

(2)

the provision of such housing is commonplace within the industry and would be in accordance with the term 'customary in the industry' as explained in Taxation Determination TD 94/97 and

(3)

it is necessary for the employer to provide the employee such accommodation because it is customary for employers in the industry to provide such a housing benefit,

the overall housing right must not represent an arrangement that was granted for the purpose or for the purposes that included the purpose, of enabling the employer to obtain the benefit of the application of this section.

It is considered that the creation of a housing right as an exempt benefit, emanating from the decision to novate a lease, is an arrangement which would be inclusive of the purposes to obtain the benefit of the application of this section.

Legislative References:
Fringe Benefits Tax Assessment Act 1986
   section 58ZC

Related Public Rulings (including Determinations)
TD 94/97

Other References:
Practice Statement PS 2000/6

Keywords
Fringe benefits
Housing benefit
Remote area housing exemption
Novated rental agreement

Siebel/TDMS Reference Number:  DW255616

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  6 December 2001

ISSN: 1445-2782