|Title:||Concessional treatment of the private housing rental paid via salary sacrifice arrangements for employees living and working in designated remote areas|
|Document ID:||Operational Circular OP 1959/05|
|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 rental for non health service owned or leased residential premises paid via a salary sacrifice arrangement for staff 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 private housing rental paid via salary sacrifice arrangements for employees living and working in designated remote areas
The Department of Health has obtained a private ruling from the Australian Taxation Office (ATO) in respect to the application of concessional treatment on housing rental paid via a salary sacrifice arrangement.
These arrangements DO NOT apply to Health Service employees living in a designated remote area in a residential premises that is owned or otherwise leased or rented by the Health Service eg GEHA housing, or a premises for which the Health Service is paying the lease and has sublet to an employee.
Not all employees of these two Health Services who rent privately will be eligible as a number of conditions apply, including where the employee lives and works.
Under the Fringe Benefits Tax Assessment Act 1986, payment of an employee's housing rental via a salary sacrifice arrangement 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.
Where the employer owns, rents or leases the house, this constitutes the provision of a house or the provision of a 'housing fringe benefit'. As such, subject to certain conditions being met, where the premises are located in a remote area this is regarded as an exempt benefit for FBT purposes. In this situation, the rental paid by the employee to the employer via a salary sacrifice arrangement is also exempt from FBT and reporting.
Where the residential premises is not located in a designated remote area, whether owned, leased or rented by the employer or not, normal fringe benefit tax valuations will apply to the rental payments.
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 rental payments made via a salary sacrificing arrangement 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. With the exception of the initial retrospectivity 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 rent paid via salary sacrifice arrangement.
Health Services are only able to claim the 50% reduction and exclude the rental as a Reportable Fringe Benefit Amount (RFBA) (for inclusion on the employee's payment summary) once the employee provides the required documentation to support this claim.
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 2001/2002, 2002/2003, 2003/2004 and 2004/05 FBT years for both FBT and RFBA purposes, however, there can be no retrospective adjustment in respect to the level of the salary cap for eligible employees.
This means that the Health Service may, upon presentation of the required documentation, adjust the taxable value for eligible rental payments by 50%, and recalculate the employees RFBA ie by removing the entire value of eligible rental payments (as they become exempt from reporting) and issue 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.
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 and RFBA if their claim can be substantiated.
No adjustment to future years' FBT returns, employee payment summaries or salary sacrifice arrangements are to be made due an employees failure to provide the substantiation documentation on time.
Identification of Eligible Employees
Appendix C contains a flow chart summarising the criteria to be addressed in determining whether an employee and/or their private rental payments will be eligible for the concessional treatment. 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 F. This should be distributed to employees who are making non Health Service rental payments as part of their salary sacrificing arrangements along with Appendices B and C.
Where an employee believes that they are eligible, they should be requested to complete Appendices D and E, together with the required documentation to enable the Health Service to identify the amount of rental paid during the FBT year.
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