Accommodation and Fringe Benefits Tax

 

This resource is for dairy farmers who provide accommodation for their employees either on farm or off farm.

It provides information as to whether the accommodation provided attracts housing fringe benefits or housing assistance fringe benefits and whether an FBT exemption (“Exempt Benefit”) can apply to a salary packaging arrangement.

It does not extend to any other type of accommodation or location related fringe benefit such as living-away-from-home allowances, board fringe benefits, etc.

The ATO has a detailed document called Fringe Benefits Tax – A Guide for Employers.

The full document can be accessed by this link.

 

What are Exempt Benefits?

 

Exempt Benefits: are benefits that are not considered to be fringe benefits and therefore are not subject to FBT.

Exempt benefits do not need to be included in an FBT Return.

“Remote Area Housing Benefits” are “Exempt Benefits”.

 

Remote Area Housing Benefits

 

There are two questions which determine whether the accommodation you are providing will be classified as a ‘Remote Area Housing Benefit’.

The first defines if you are deemed to be living in a “Remote Area” and the second determines if the accommodation is deemed to be “Necessary”.

Both questions must be answered.

1. Are you in a “Remote Area”?

The ATO definition of Remote Area” is a location-based test, using the “urban centres” identified by their population size in the 1981 Census.

You are in a “Remote Area” if your property is located near one of these “urban centres”.

A large number of farms in Australia would be classified as ‘remote’ by this definition.

As this test is location based, if you have multiple farms at different locations, each farm will need to be assessed separately.

There are 3 ways to determine if your property is located in an area deemed to be in a “remote area” as follows:

(i) Are you on the list of “Remote Areas”?

The following link takes you to the list of towns which are regarded as “Remote Areas”.

You need to go to List 1.

If your location is on List 1 your property will be regarded as “remote” and you do not have to consider (ii) below.

https://www.ato.gov.au/Business/Fringe-benefits-tax/In-detail/Fringe-benefits-tax—remote-areas/?page=1#List1

(ii) If your location is not listed on List 1

Your location may also be considered to be “remote” for income tax purposes if it is not located in or near an ‘eligible urban area’ as defined below:

i) A location that:

(a) Is situated in Zone A or B for income tax purposes – go to this link for Zones A and B.

https://www.ato.gov.au/calculators-and-tools/australian-zone-list/);

(b) AND is at least 40 km from an urban centre that had a census population in 1981 of 28,000 and less than 130,000, AND

(c) Is at least 100 km from an urban centre that had a census population in 1981 of 130,000 or more.

OR

ii) A location that:

(a) Is not situated in Zone A or B for income tax purposes – go to this link for Zones A and B.

https://www.ato.gov.au/calculators-and-tools/australian-zone-list

(b) AND Is at least 40 Kms from an urban centre that had a census population in 1981 of 14,000 and less than 130,000; AND

(c) is at least 100 kms from an urban centre that had a census population in 1981 of 130,000 or more.

If your location is defined in one of the above ways as a Remote Area” then the following question must also be answered to determine if the accommodation you are providing can be classified as a ‘Remote Area Housing Benefit”

2. Is the accommodation “necessary”?

A Housing benefit is deemed to be “necessary” where:

(i) For the whole of the tenancy period, the unit of accommodation is in a “remote area” (that is, it is not located in or adjacent to an eligible urban area see above).

(ii) For the whole of the tenancy period, the accommodation is occupied by a person who is your current employee, and the usual place of employment of the employee is in the remote area.

(iii) It would be concluded that it must be necessary for you to provide accommodation for employees or to arrange to provide such accommodation because:

– The nature of your business is such that employees are liable to move frequently from one residential location to another;

– There is insufficient suitable residential accommodation otherwise available at or near the place or places where the employees are employed; or

– It is customary in that industry to provide free or subsidised accommodation for employees.

(iv) The benefit was not provided to the employee under either:

– A non-arms length arrangement; or

– An arrangement that was entered into by any of the parties for the purpose of, or partial purpose, to obtain the concession.

As it is common industry practice in the dairy industry for an employer to provide accommodation to their employees, whether due to the remote location of the farm, or the type of duties undertaken by that employee, most farmers will pass the test of whether it is “necessary” to provide the accommodation.

If you satisfy these two requirements, the housing benefit provided to your employee is exempt from FBT.

This means that the accommodation provided doesn’t form part of the employee’s taxable wages and the employer is not liable for Fringe Benefits Tax.

For further information Housing Fringe Benefits are covered in Chapter 10 of the ATO’s Fringe Benefit Tax – A Guide for Employers.

Section 10.8 details “Exempt Housing Benefits”, specifically “Remote Area Housing Benefits”.

Expense Payment Fringe Benefit

 

If you don’t qualify for a “Remote Area Housing Benefit”, your next option is to determine whether you are entitled to a “reduction in taxable value” for the housing benefit you provide.

“Remote Area Rent Assistance” where the employer does not own the unit of accommodation but pays the rent on a unit on behalf of the employee is one example of an “Expense Payment Fringe Benefit”.

You are entitled to a 50% reduction in taxable value of the employee’s “relevant expenditure” (the gross rent) during the period subject to satisfying the Remote Area Rent Assistance.

Note that Fringe Benefits Tax would still apply in this instance.

 

Further Information

 

Chapter 19 of the ATO’s Fringe Benefit Tax – A Guide for Employers details different fringe benefits which are eligible for reductions in taxable value.

Section 19.2 specifically details the reductions available for remote areas.

https://www.ato.gov.au/law/view/document?DocID=SAV%2FFBTGEMP%2F00020

General useful information regarding FBT is contained in Chapter 1 of the ATO’s Fringe Benefits Tax – A Guide for Employers

Note

The above has only been provided for general informative purposes and does not constitute advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.