|Title:||Concessional treatment of the interest component of mortgages paid via sacrifice and/or the Home Ownership Subsidy Scheme for employees living and working in designated remote areas|
|Document ID:||Operational Circular OP 1958/05|
|Date of issue:||Thursday, 9 June 2005|
|Description:||This Operational Circular outlines the policy and procedures to be followed by health services claiming a 50% reduction for Fringe Benefits tax purposes in relation to the interest component of an eligible employee's housing loan that they contribute to via a salary sacrifice arrangement and/or under the Home Ownership Subsidy Scheme for employees living and working in designated remote areas.|
|Applicable to:||All employees living and working in remote areas|
|Period of effect:||from 1 April 2001|
|Authorised by:||Mr John Griffiths, Director, Health Finance, 01-Jun-2005|
|Print version:||View print version|
Concessional treatment of the interest component of mortgages paid via sacrifice and/or the Home Ownership Subsidy Scheme for employees living and working in designated remote areas
The Department of Health has obtained a number of private rulings from the Australian Taxation Office (ATO) in respect to the application of concessional treatment on the interest component of mortgages paid via a salary sacrifice arrangement. These rulings also apply in respect to payments made under the Home Ownership Subsidy Scheme (HOSS).
Not all Health Service employees will be eligible as a number of conditions apply, including the type of housing loan the employee may have, whether funds have been redrawn against the loan, where the employee lives and works, etc.
Under the Fringe Benefits Tax Assessment Act 1986, payment of the interest component of the loan is regarded as an 'expense payment fringe benefit' (ie it is the payment of an expense incurred by the employee), and NOT a 'housing fringe benefit' (ie is not the provision of a 'house' by the employer). As such, different rules apply in respect to defining which towns are in a remote area for 'expense payment fringe benefits' compared to those for 'housing benefits' for employees of these Health Services.
Further information on which employees are eligible is contained in the attached Appendices.
Health Services may claim a 50% reduction on the taxable value of the interest component in respect to payments made by these two Health Services via a salary sacrificing arrangement and/or under the HOSS for an eligible employee in any Fringe Benefits Tax (FBT) year ie 1 April to 31 March, but only once all requirements of Appendix A have been satisfied.
Health Services must not claim a concession unless the employee provides the necessary documentation to substantiate the claim within the required timeframe. Under no circumstances are Health Services entitled to claim a deduction in respect to the principal component of a remote area housing loan.
With the exception of the initial backdating of claims as outlined later, Health Services must not allow an employee the concession after they have lodged their annual FBT return.
Employees may not salary package funds above or beyond the current salary sacrifice concession cap of $17,000 grossed up value in anticipation of any possible reduction in the interest component of eligible salary sacrificed mortgage repayments.
Health Services are able to reduce an employee's reportable fringe benefits amount (for inclusion on the employee's payment summary) only once the reduction in the interest component has been claimed. This reduction applies to the interest portion of the mortgage only, and not to the principal.
Date of Effect
Provided the necessary documentation can be supplied to prove that an employee is eligible, the reduction can be applied retrospectively to the FBT year commencing 1 April 2001 ie the claims can be backdated for the 2001/02, 2002/03, 2003/04 and 2004/05 FBT years.
This means that the Health Service may, upon presentation of the required documentation, adjust the employee's taxable value by 50% for the interest component (only), recalculate the employees Reportable Fringe Benefit Amount (RFBA) and issue relevant letters to the employee and the ATO to advise of the change. It may also require recalculating the FBT and filing an amended FBT return for these years.
There can be no retrospective adjustment in respect to the level of the concession cap for salary sacrifice purposes for eligible employees.
Health Services should set a reasonable date for employees to obtain the required documentation before making adjustment to the FBT returns and advising the ATO in respect to any changes to employee's payment summaries for these four years. It is recommended that employees should make their claims by no later than 31 August 2005.
Employees who have since left the Health Service, but meet the criteria for these retrospective periods may also claim the reduction if their claim can be substantiated.
No adjustments to future year's FBT returns, employee payment summaries or salary sacrifice arrangements are to be made due to an employees failure to provide the substantiation documentation on time.
Identification of Eligible Employees
Appendix C contains a flow chart summarising the issues that must be addressed in determining whether an employee and/or their housing loan will be eligible for the concessional treatment on the interest component. This should be used as a guide only. Full details should be confirmed against the criteria in Appendix A.
A proforma letter for Health Services to use to notifiy employees as to their potential eligibility for the reduction is included at Appendix H. This should be distributed to employees who are making loan repayments as part of their salary sacrificing arrangements and/or are receiving payments under HOSS, along with Appendices B and C, to help them assess their eligibility for the reduction on the interest component.
Where an employee believes that they are eligible, they should be requested to complete Appendices D and E, and F or G depending on whether the loan has been subject to any withdrawals, together with the required documentation identifying all contributions to the loan as well as the interest and capital components of the payments.
All queries should be directed via e-mail only to Kevin Forward at email@example.com.
Mr John Griffiths
This circular last updated: Thursday, 9 June 2005 at 11:04am