As we approach the warmer months and enter what is now the COVID normal period, the time is primed for employers to be aware of the concessions that can apply where they provide their employees with discounted or free accommodation.
The Concessions
There are two main concessions that may be of relevance for employers that provide accommodation to the public these being:
- The in-house benefits concession; and
- The remote area housing exemption
In-house Benefit Concession
An in-house residual benefit will arise where an employer provides an employee with free or discounted overnight accommodation at a property that the employer owns, or leases and the employer is in the business of offering accommodation to the public at large.
The taxable value of this accommodation for FBT purposes is calculated as 75% of the lowest amount charged to a member of the public that is provided with similar accommodation.
Employers are then entitled to deduct an amount of $1,000 per employee per FBT year, meaning that employers can provide employees with up to $1,333 of discounted accommodation without incurring an FBT liability.
Importantly, where the discount provided is less than 25% (to what is offered to the public at large) no taxable value will arise for FBT purposes and this discount will not count towards the in-house benefit threshold referred to above.
Whilst an employer will need to consider the commerciality of providing employees with discounted or free accommodation given their overall business strategy, this concession allows an employer to provide additional benefits to their employees without incurring an FBT cost.
Indeed, for those businesses that aren’t already and who own multiple parks they may wish to think about using this concession as part of a staff benefit package that provide certain staff with holidays in their other businesses (e.g. 4 or 5 free nights at a park of your choice). In this regard, not only do the staff get a break they get to meet some of their colleagues which no doubt will provide a number of other business benefits.
A final alternative that is often used in the industry where a taxable fringe benefit arises is for the employer to pay a grossed up allowance to the employee with the employee using the net proceeds of the allowance to make a post-tax contribution towards the value of the accommodation. This post-tax contribution reduces the taxable value of the benefit to NIL and can be an advantage where the employee is not at the top marginal tax rate. This approach can have superannuation, payroll tax and workers compensation considerations so it is recommend that advice be obtained from your trusted BDO adviser prior to implementing such a scheme.
Remote Area Concessions
The second main concession that may have application are the remote area concessions. These concessions provide an FBT exemption for employers who provided their employees, who are required to live in a remote area, accommodation that they occupy as their usual place of residence.
A remote area is a location that is not in or adjacent to an eligible urban area. An eligible urban area is an urban centre which had a specific population size as set out in the 1981 Census. Further details on this criterion and those locations that are considered remote is available on the Australian Taxation Office website.
Interestingly areas that you might not immediately consider as remote (e.g. Bryon Bay) are considered remote for tax purposes so employers should ensure that they check this list carefully to confirm the status of their location.
Where the accommodation owned or leased by the employer is in a remote area (as defined by the legislation), this means that employers could provide their employees with permanent accommodation on-site without incurring an FBT liability.
In the circumstances, where the employer wants to have the employees bear the cost of their accommodation, the employer could enter a salary sacrifice arrangement with the employee to salary sacrifice the value of the accommodation.
This would have the advantage for the employee of essentially paying for their accommodation from pre-tax income, without increasing the overall cost for the employer.
Whilst the above talks about accommodation only, employers should be aware that FBT may be payable in certain circumstances where the employer also covers other incidental costs of the property including telephone, electricity, water and gas.
As can be seen from the above there are several issues that need to be considered where providing benefits to your employees. If you want further information in respect of these benefits or how you may be able to reward your staff in a more tax efficient way please contact a BDO Tourist Park adviser.