A housing fringe benefit occurs when an employee is offered a place to live without charging them rent or at a lower cost than usual. This applies when the provided accommodation is where the employee typically lives.
However, these rules don’t apply if the employee lives in a remote area that has been identified as such, if they are residing somewhere else to perform their job duties, or if they are traveling for work purposes.
What Does Accommodation Mean?
- a residence like a house, apartment, or condominium
- establishments like hotels, motels, guesthouses, bunkhouses, or similar living arrangements
- mobile dwellings like caravans or motor homes
- ships or other types of floating structures.
Exemption Criteria for Accommodation in Remote Areas
- Continuous Employee Occupancy: The accommodation must be inhabited by a current employee throughout the entire rental period. This employee’s usual workplace should be located in the remote area.
- Justified Accommodation Provision: The rationale behind offering accommodation should be reasonable due to one of the following reasons:
- The nature of your business requires employees to frequently relocate between different residential areas.
- Limited suitable residential options are available around the vicinity where employees work.
- Offering free or subsidized accommodation is a customary practice within your industry.
Exceptions to FBT Exemption
This exemption is not available if you provide the accommodation to the employee under:
- An arrangement that lacks arm’s length conditions.
- An arrangement that was specifically set up solely for the purpose of obtaining the housing exemption.
If the accommodation fall under the FBT exemption for remote areas, there is no need for any further steps or actions on the employer’s part.
Steps To Take When Providing a Housing Fringe Benefit
When you’re dealing with housing benefits that don’t qualify for an exemption, following steps must be taken:
1. Determine Taxable Value: Start by assessing the value of the housing benefit that needs to be taxed. This involves:
- Evaluating the market rental value of the provided accommodation.
- Subtracting any contributions your employee makes towards the housing, such as rental payments.
2. Compute Your FBT Amount: Calculate the amount of Fringe Benefits Tax (FBT) that corresponds to the taxable value of the housing benefit.
3. File Your FBT Return: Submit your FBT return that reports the calculated FBT amount along with all the necessary details.
4. Fulfill Your FBT Payment: Make the payment for the determined FBT amount within the required timeframe.
5. Reporting via Single Touch Payroll: Assess whether to report the housing fringe benefit through the Single Touch Payroll system or on your employee’s payment summary.
Taxable Value of the Housing Fringe Benefit
- Identifying the current market rental value of the accommodation.
- Deducting any financial contributions made by your employee, such as rental payments, from the market rental value.
How To Calculate Value of Housing Benefit?
The value of a housing benefit is rooted in the concept of market value. It revolves around an impartial rental value, established through fair market conditions, without any unique considerations linked solely to the arrangement between the employer and the employee.
This valuation is often derived by comparing similar properties within the vicinity. The rental value is adjusted by subtracting any rent that the employee pays.
Variations Within the Market Value Principle Based on Circumstances
- If the provided accommodation closely resembles what a business offers to the public (e.g., caravan parks, hotel, mobile home, motel, and hostel/guesthouse accommodation) – the taxable value stands at 75% of the market rental value, minus any rental payments.
- When the market rental value is determined with reference to a long-term occupancy rate (estimated at around 15% of the prevailing daily rate).
- For dissimilar accommodations (like houses) – the taxable value aligns with the market rental value, minus any rental payments.
- In cases of different types of accommodations – the taxable value is the market rental value, adjusted by subtracting the employee’s rental payments.
Calculating Value for Subsequent Years and Indexation
You can calculate the rental value for each following year by utilizing the initial (base) year alongside an indexation factor. This method is applicable for a maximum of 9 years.
The indexation factor, which is computed and disclosed on an annual basis, serves to modify the value accordingly.
Annualize all calculations and subsequently allocate them over the occupancy period. This ensures a thorough evaluation of the housing benefit’s value.
By following this approach, you maintain equilibrium between fairness and precision, while taking into account different situations.
Indexation Multipliers for Assessing Non-Remote Housing Fiscal Year 2023-24
The multipliers for indexation, used to evaluate the value of non-remote housing according to section 28 of the Fringe Benefits Tax Assessment Act 1986, are applicable for the fringe benefits tax year beginning on 1 April 2023.
|New South Wales||1.009|
|Australian Capital Territory||1.053|
Adjustment for Temporary Accommodation during Employee Relocation
In scenarios where an employee needs to change their regular living arrangement to commence or sustain employment with employer’s organization, he has the option to decrease the taxable value of a housing fringe benefit, and this reduction might even bring it down to zero.
This Provision Applies in Two Situations:
1. Temporary Accommodation at Former Location (up to 21 Days)
If the employee’s previous residence isn’t available or suitable for occupancy, you can apply this concession to lower the taxable value for temporary accommodation needed for a period of up to 21 days at their former location.
2. Temporary Accommodation at New Location (up to 4 Months, Potentially Extended to 12 Months)
When the employee is diligently trying to secure suitable long-term accommodation at the new location, you can reduce the taxable value for temporary housing for a span of up to 4 months.
In certain specific circumstances, this concession can be extended to a maximum of 12 months. To substantiate this reduction, the employer must obtain an employee declaration as evidence.
FBT Benefits and Travel Assistance in Remote Locations
As an employer, you can tap into a range of fringe benefits tax (FBT) concessions when providing perks to employees in distant areas.
Each concession has its own set of prerequisites. Moreover, to qualify for any of these concessions, the employer need to fulfill the criteria mentioned earlier under the heading “Exemption Criteria for Accommodation in Remote Areas”
What is a “Remote Area”?
A remote area is a geographical location that is neither within nor adjacent to a qualified urban area. An eligible urban area is an urban center that, based on the 1981 Census data, possessed a population of a specified magnitude as indicated in the provided table.
For the purpose of fringe benefits tax (FBT), an area is categorized as remote if it falls under any of the following classifications:
The area fulfills the following criteria:
- It is not designated as Zone A or Zone B for income tax purposes.
- It is situated at a minimum distance of 40 kilometers from an urban center with a population ranging from 14,000 to less than 130,000.
- It is positioned at a minimum distance of 100 kilometers from an urban center with a population of 130,000 or more.
The location aligns with the following parameters:
- It falls under Zone A or Zone B for income tax considerations.
- It is located at a minimum distance of 40 kilometers from an urban center with a population ranging from 28,000 to less than 130,000.
- It is positioned at a minimum distance of 100 kilometers from an urban center with a population of 130,000 or more.
The conditions include:
- The employer falls within the specific category of regional employers.
- The employer is providing a housing benefit.
- The location is situated at least 100 kilometers away from an urban center that, based on the 1981 Census, had a population of 130,000 or more.
Thus, a remote area, for FBT purposes, involves areas that meet these specific classification criteria, ensuring a clear delineation of such regions.
Accommodation in Remote Regions
If you offer accommodation in a remote area to an employee and it meets the mentioned eligibility criteria, it becomes exempt from fringe benefits tax (FBT).
However, the accommodation should be in a dwelling like a house or an apartment. Note that a caravan doesn’t fall under the definition of a dwelling.
Subsidizing Accommodation Costs in Remote Areas
In cases where you financially assist employees with their accommodation expenses in remote locations and the given conditions are met, you might potentially reduce the taxable value of the fringe benefit by 50%.
It’s important to distinguish this concession from the exemption for remote area housing benefits, which applies when actual accommodation is provided.
Different criteria are there for the FBT reduction when you offer support to cover your employee’s incurred costs.
Reductions for Fringe Benefits in Remote Areas
Following are the types of reductions or concessions that are available to employers when providing certain benefits to employees in remote areas:
Remote Area Loan Benefit Reduction
When an employer extends a loan-related fringe benefit connected to a dwelling for an employee in a remote area, and the employee uses that dwelling as their main place of residence during a portion of the FBT year while repaying part or all of the loan, a significant reduction in the taxable value can be availed.
This reduction amounts to 50% of the taxable value, specifically concerning the time of occupancy.
Remote Area Interest Payment Benefit Reduction
In cases where an employer provides an expense payment fringe benefit to cover the interest accrued by an employee on a housing loan tied to a remote area dwelling, and the employee occupies this dwelling as their regular residence during a segment of the FBT year when the interest accumulates, a valuable reduction in the taxable value is possible.
This reduction, amounting to 50% of the taxable value, is applicable to the time of residence.
Remote Area Rent Subsidy Reduction
Employers offering an expense payment fringe benefit to cover rent accrued by an employee for residential accommodation in a remote area can enjoy a substantial reduction in the employee’s expenditure associated with the period of residency.
If the employee uses the accommodation as their usual residence during part of the FBT year when the rent accrues, this reduction, equal to 50% of the gross rent, applies to the employee’s relevant expenses within the period of occupancy.
Remote Area Property Benefit Reduction
For employers providing employees with a property fringe benefit that includes land, a house, or a combination of both in a remote area, and where the employee’s property is classified as a remote area residential property, a noteworthy reduction of 50% in the taxable value of the property fringe benefit is available.
This reduction aligns with the shared conditions applicable to remote area benefits.
Residential Fuel Benefit Reduction in Remote Areas
In cases where you provide residential fuel, which includes electricity, to an employee alongside an accommodation-related fringe benefit in a remote area, you could potentially lower the taxable value of the fringe benefit by 50%.
Holiday Transport Benefit Reduction in Remote Areas
When the employer covers travel expenses for an employee’s holiday journey to and from a remote area, he can reduce the taxable value of the resulting fringe benefit by 50%.
Reducing Taxable Value through Relocation Expense Benefits
In situations where an employee needs to move to a new home or stay away from their usual residence due to work obligations, and the employer covers the costs related to the relocation, there’s a chance to lower the taxable value of the associated fringe benefit.
This concession pertains specifically to relocation expenses that includes:
- Transportation facilitated by the employee’s personal vehicle.
- Provision of temporary accommodation.
- Expenses related to meals during the relocation period.
Thus, we can say that these reductions and concessions offer vital financial relief to employers while acknowledging the unique challenges faced by both employers and employees operating in remote areas.
This article is for general information only. It does not make recommendations nor does it provide advice to address your personal circumstances. To make an informed decision, always contact a registered tax professional.