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Salary Packaging Remote Area Housing Benefits

Payroll – Registration as Tax or BAS Agent

FBT – Housing Fringe Benefit

GST – Loyalty Programs

GST Q&As

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Remote area housing benefits may be exempt:

1. Accommodation must be in remote area

2. Employee must be employed in a remote area for the whole tenancy period

3. Provision of accommodation is necessary

4. The arrangement is bona fide

Accommodation must be located in remote area Accommodation must not have been “adjacent” to

an “eligible urban area” (EUA) to be in a remote area EUA is a town or a city with a 1981 census

population of 14,000 or more. Location “adjacent” to EUA if < than 40km by

shortest practicable surface route from the centre point of an EUA with 1981 census population of less than 130,000, or < than 100km from an eligible urban area with census population of 130,000+

If “adjacent” to EUA then not remote area

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Provision of accommodation is necessary Must be necessary for employer to provide free or

subsidised accommodation to employees for any of following reasons: – the nature of employer's business is such that employees

are likely to move frequently from one location to another

– there is not sufficient suitable residential accommodation available in the area in which employee is employed, or

– it is customary in employer's industry to provide free or subsidised housing to employees

The arrangement is bona fide

The arrangement must be an arm's length and must not be provided for the purposes of obtaining the concessions

This anti-avoidance condition does not necessarily exclude a housing benefit under a salary sacrifice arrangement

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In Taxpayer Alert TA 2002/9 the ATO issued a warning pertaining the following arrangement:

employee employed in remote area either buys or leases a residential property in that area

employee leases property to employer and receives rent

property is then provided back to employee rent-free until employee moves to other location or ceases to be employed

employee declares rent as assessable income and claims property expenses as deductions, resulting in a tax loss

The ATO stated that the arrangement may not have entitlement to remote area housing benefit exemption and property expenses may not be deductible and the general anti-avoidance provisions of Pt IVA can be applied

Commissioner has discretion, to treat person who resides adjacent to EUA as residing outside that area if persons living near that person are outside that area.

Commissioner may also treat a person who works adjacent to EUA as working outside that area if persons who work near that person are outside that area

According to EM this discretion may be exercised in situations where near neighbours would otherwise be treated differently as to whether they qualify for the concession under the remoteness tests because they live or work on opposite sides of the dividing mark

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Where an employer provides an employee with a remote area housing benefit that is exempt and, under a clause in the residential tenancy agreement, the employer agrees to provide the employee with free water in connection with the accommodation, the provision of water constitutes part of the exempt benefit.

As the water is provided to an employee in accordance with a residential tenancy agreement between the employer and the employee, the water forms part of the “housing right” that is granted under the same agreement.

Unlike electricity or gas, water is not “residential fuel”

Remote area housing assistance

Taxable value of housing assistance fringe benefit may be reduced by 50%

Reduction to 50% relates to a benefit that is housing assistance, rather than provision of a housing benefit which is exempt

Housing assistance include:

– a payment or reimbursement of rent

– making of a housing loan

– payment /reimbursement of interest accrued on a housing loan

– the provision of land, or house and land

– payment /reimbursement of cost of acquiring land, or house & land

– payment received by employee in respect of granting to employer of a repurchase option on the house, or payment in respect of the repurchase of employee’s house

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Payroll providers must be registered tax or BAS Agents

By way of background, The Tax Agents Services Act 2009 (TASA) permits only Tax and BAS Agents to provide “BAS services” for a fee to members of the public.

A BAS service includes: – Ascertaining a client’s liabilities, obligations or entitlements under a BAS

provision

– Advising a client about their liabilities, obligations or entitlements under a BAS provision

– Representing a client to the Tax Office in relation to a BAS provision.

A 'BAS provision' specifically includes dealing with PAYG withholding

Additionally a BAS Service also includes dealing with a client’s superannuation guarantee obligations. 12

Payroll providers must be registered tax or BAS Agents

Implications for employer is that there may not be effective lodgement and compliance as well as no safe-harbour protection from penalties

For providers penalties can be severe:

Fines of between $5,500 to $137,500 per offence

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Tax Practitioners Board (TPB) has released exposure draft of an information sheet to assist payroll service providers to better understand the tax agent services regime.

TPB invites submissions by 25 August 2014

TPB will consider submissions and undertake any further consultation required before settling its final position.

You can view the documentation at the following link http://www.tpb.gov.au/TPB/Publications_and_legislation/TPB/Publications_and_legislation/ED/0605_TPB__ED__D22_2014_Payroll_service_providers.aspx

Registration as a Tax Agent, Tax Agent with Payroll nomination or BAS agent is designed to be a consumer protection

“Once finalised, the information sheet will assist payroll service providers determine if they need to register with the TPB as a tax or BAS agent” Mr Ian Taylor, Chair of Tax Practitioners Board

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Housing fringe benefit

Consists of the provision of the right to use a unit of accommodation

– House, flat, apartment, home unit

– Accommodation in hotel or caravan park

– Must be usual place of residence of employee

If in remote area, may be exempt benefit (subject to conditions)

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Housing fringe benefit

Housing right will not exist if significant portion of property is used for business purposes:

In AAT Case [2013] AATA 566, a 50% or more business use would have resulted in there being no housing right.

If recipient of housing right is unable to continue to occupy unit of accommodation as it has been destroyed in a natural disaster, then housing benefit no longer exists (ATO ID 2011/57).

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Housing fringe benefit

Statutory annual value of a right to occupy a unit of accommodation is market value of the right to occupy the accommodation for the base year of tax (market rent)

Base year will be first year in which housing fringe benefit provided to an employee or associate

Statutory annual value in year succeeding base year is determined by applying relevant prescribed indexation factor in respect of relevant State or Territory

Indexed value is to be aligned with market rental value every 10 years

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Housing fringe benefit

In Taxpayer v FCT [2013) AATA 566, AAT affirmed the objection decision of ATO finding that taxpayer could not rely on private ruling in relation to provision of housing fringe benefit by taxpayer company to an employee.

Note methodology used to determine relevant FBT liability in Taxpayer v FCT - potentially advantages to taxpayers

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Housing fringe benefit

In Taxpayer v FCT the FBT outcome on use of methodology by taxpayer seems to be flawed.

Methodology ignores the legal form and substance of the ownership interests of the relevant parties.

This methodology was also adopted by the ATO in the PBR and following its audit and subsequent review of the objection decision.

Methodology resulted in a lower FBT liability being imposed on taxpayer than perhaps, otherwise should have been. to taxpayers

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Housing fringe benefit

Example

During the 2014 income year, Company A and Mr B each buy 50% of a two storey house as tenants in common.

The parties agree that Company A will use the ground floor for business purposes and that Mr B will use the first floor as a private residence.

Mr B is an employee of Company A.

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Housing fringe benefit

Example

What are the FBT consequences for Company A for the 2014 Income year using the methodology adopted in the Taxpayer case?

Applying the methodology adopted in Taxpayer case, it would be argued by Company A that no FBT would be payable because no housing benefit would arise in relation to use of first floor by Mr B as his private residence.

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Housing fringe benefit

Example

What methodology should be used for FBT liability?

Each party, as tenants in common, own 50% of both floors (i.e., they each own 50% of portion of house that is used exclusively for business purposes and 50% of portion used exclusively for private purposes).

Company A would be liable to pay FBT in respect of housing benefit it provides to Mr B (i.e., in relation to its 50% share of first floor used by Mr B as his private residence).

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Housing fringe benefit

Example

What were the FBT consequences of using flawed methodology in the Taxpayer case?

Resulted in a lower FBT liability because FBT was paid in relation to 30% of private usage of House (i.e., on basis that portion of House used exclusively for business purposes (20%) was owned exclusively by taxpayer

Better view is that because taxpayer can be said to own only 10% of portion used exclusively for business, FBT should be paid i.r.o. 40% private usage of the House.

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Housing fringe benefit

Example

What were the FBT consequences of using flawed methodology in the Taxpayer case?

Resulted in a lower FBT liability because FBT was paid in relation to 30% of private usage of House (i.e., on basis that portion of House used exclusively for business purposes (20%) was owned exclusively by taxpayer

Better view is that because taxpayer can be said to own only 10% of portion used exclusively for business, FBT should be paid i.r.o. 40% private usage of the House.

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Loyalty programs

Q&A – Vouchers as prizes

Q&A – Compensation for pipeline easement

Q&A – Cash contributions by employees

Basic structure

Stages in loyalty programs

– Joining the program

– Earning points

– Redeeming points

– Creditable acquisitions?

The voucher question

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Incentive to complete a survey

Employee participation (FBT?)

Compensation paid to owner

Compulsory acquisitions generally

Section 9-5 basics

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Purchase of non-business accessories for company cars

GST on cash contribution by employees?

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Professional Certificate in GST starts 2nd Sept

Live Monthly Update 8th Sept

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