Zone tax offset and remote area FBT concessions review begins

The Productivity Commission has commenced a review of the zone tax offset and remote area fringe benefits tax (FBT) concessions, including the limit of the areas they apply to.

An initial issues paper is expected in March for public comment by May.

Zone tax offsets

Zone tax offsets were originally established in 1945 to compensate for higher isolated living costs and harsh climatic conditions, and are typically up to around $2,000 today. In very rough terms, places more than 1,000km from Sydney, Melbourne and Brisbane, and 500km from Perth and Adelaide qualify.

To provide perspective at current prices, a 22kg package that costs $35 to deliver between addresses in Melbourne costs $60 to deliver to nearby beach towns and $500 to deliver to Yulara, NT. Home insurance that costs $1,250 in Melbourne costs $2,200 in Brisbane and $5,500 in cyclone-prone Cairns.

Remote area FBT concessions

Remote area FBT concessions are available more than 100km from cities and more than 40km from designated larger towns. These areas may have particularly thin housing markets, and employee assignments to them are often temporary. Housing is the key remote area FBT concession, and important to the mining industry amongst others.

Current remote area FBT concessions are unduly prescriptive and result in significant differences in tax from small differences in form. For instance:

  • Employer v employee lease: Employer-leased (or owned) housing provided to local employees in a remote area is generally FBT exempt. By contrast, only the first half of the rent of a home that the employee leases directly from a landlord can be reimbursed by the employer without FBT. Which way the housing benefit is provided also impacts the FBT on associated utilities and leased furnishings.
  • Local v temporary staff: If theemployee temporarilyrelocated to the work area, a living-away-from-home (LAFH) FBT exemption for housing and food may apply for 12 months irrespective of whether or not the area is remote, and irrespective of the way the housing is provided. For local employees, income tax instead applies if an allowance is given.
  • FIFO exemption v ‘otherwise deductible’: Transport for fly-in fly-out workers to and from a remote work area is generally FBT exempt, provided the employer directly provides housing near the remote work site. Even if the employer does not do that, or if the site is not officially ‘remote’, the otherwise deductible rule for business travel may, depending in part on the terms of the employment contract, still eliminate FBT on the transport as well as the accommodation and food.
  • Canteen v home kitchen: Food consumed on a work day is generally not subject to FBT if it is consumed in the company canteen, but is subject to FBT if consumed in the employee residences unless the employee is undertaking ‘otherwise deductible’ business travel or it is an exempt LAFH benefit.

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Authors

Graham Warren

Special Counsel

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Cameron Blackwood

Director

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