Taxpayer Alerts

TA 2002/9

Remote Area Housing Benefit Arrangements

FOI status: may be released

This Taxpayer Alert describes an arrangement where an employer and its employee enter into a lease agreement on a residential property either owned or leased by the employee in a remote area. The employer makes rental payments to the employee and allows the employee to live in the property rent free. The arrangement seeks to allow the employee to obtain tax deductions in relation to the employee's private residence and to exempt the employer from fringe benefits tax by relying on the remote area housing exemption.

DESCRIPTION

The Alert applies to arrangements having the following features:

1.

An employee is employed in a remote area.

2.

The employee either buys or leases a residential property in that area.

3.

The employee leases the property to his or her employer and receives rent from the employer. The property is then provided to the employee rent-free by the employer until such time as the employee ceases to be in employment or moves to another location.

4.

In a variation on this arrangement, the employee enters into a salary sacrifice arrangement with the employer. The employee foregoes part of their expected total remuneration in return for the rent-free housing. The amount foregone is equal to the rental payments made by the employer to the employee.

5.

The employee declares the rent received as assessable income and claims property expenses such as interest on loans, rates, maintenance and depreciation as deductions from that income. This is said to result in an overall loss to the employee which can be offset against other income.

6.

The employer claims to satisfy the conditions set out in paragraph 58ZC(2)(a) to paragraph 58ZC(2)(e) of the Fringe Benefits Tax Assessment Act 1986 ('the FBTAA') and to be entitled to the remote area housing benefit exemption.

FEATURES WHICH THE ATO CONSIDERS GIVE RISE TO TAXATION ISSUES

The ATO considers that the arrangement outlined above gives rise to taxation issues which include:

(a)

Whether the conditions set out in paragraph 58ZC(2)(a) to subparagraph 58ZC(2)(d)(iii) of the FBTAA are satisfied.

(b)

Whether paragraph 58ZC(2)(e) of the FBTAA, which denies the exemption, applies.

(c)

The deductibility of the property expenses to the employee.

(d)

Whether the general anti-avoidance provision contained in Part IVA of the Income Tax Assessment Act 1936 will apply given that the arrangement seems artificial and contrived in its design and execution.

The Australian Taxation Office is examining these arrangements.

Date of Issue: 24 October 2002

Date of Effect: 24 October 2002

Related Practice Statements:
PS 2001/15 - Taxpayer Alerts

Other References: MR 2002/100

Subject References:
Remote Area Housing Benefit

Legislative References:
ITAA 1997 Section 8-1
FBTAA section 58ZC
FBTAA paragraph 58ZC(2)(e)
ITAA 1936 Part IVA

Authorised by:
Mr Kevin Fitzpatrick First Assistant Commissioner