A little-known fringe benefits tax exemption designed for the mining and agricultural centre could turn housing into a competitive advantage for rural practices.
Rural practices, registrars and some internationally trained doctors all stand to gain from a relatively obscure fringe benefits tax exemption which covers housing in rural and remote locations.
The Remote Area Housing Benefit allows employers that provide housing to employees to be exempt to some fringe benefits tax.
In a nutshell, if a staff member lives and works in a remote area and their employer pays their rent as part of their remuneration package, that rent is generally deductible to the employer and may be exempt from fringe benefits tax.
What’s more, paying rent as part of a salary package means the employee has lower take-home pay and therefore pays less income tax.
“Anywhere you can get an exemption from fringe benefits tax can be a bit of a win,” RSM Australia tax specialist Thomas Leslie told The Medical Republic.
“If your employer is exempt from fringe benefits tax, that means they don’t pay any additional tax on non-cash benefits they provide to employees.
“The employees can benefit by paying less income tax, because you can build it in your remuneration package in a way that you’re still getting the overall same remuneration, but some of it’s in the form of a non-cash benefit.”
As an accountant based in the regional area of Albury Wodonga, Mr Leslie said he commonly saw the rural area housing benefit used by businesses like farms, which might have a property manager living in accommodation on site.
“There are some industries where [use of the remote area housing benefit] is really common,” he said.
“But for medicos, it just hasn’t been common at all. Everyone we’ve talked to in medicine has never heard of it, but as soon as we explain how it works, they get really excited about it, because it does represent a great opportunity.”
While most fellowed GPs are contractors, and therefore don’t enter into an employer-employee relationship with the practice they work at, registrars and some international medical graduates tend to work as employees of a clinic.
There are a few more conditions.
The location of the workplace and the accommodation must be in a remote area. This part is actually relatively easy, because the definition of “remote” is as defined by the 1981 census.
“If you’re 40km away from a town centre that had a population of 28,000 people in 1981 or 100km away from somewhere that had 130,000 people, you’re remote,” Mr Leslie said.
Related
“I’m based in Albury Wodonga, and while it’s not remote as per the tax office definition, a lot of the areas around here are, like Yarrawonga and Bright.”
The second condition is that the employee has to both work and live in the “remote” location, rather than be fly-in-fly-out.
Next, the practice must prove that it is genuinely necessary to provide housing.
“You can’t just provide the housing to get the tax benefit,” Mr Leslie said.
“The legislation gives you three different criteria where they deem it ‘necessary’ for the employee to be provided housing.
“[The first is] that is generally customary in that industry to provide housing as part of a remuneration package. Mining comes to mind for that.
“… The second one is that there’s no suitable supply in the area, which is generally going to apply to a lot of areas.
“The definition ‘suitable’ is subjective. Generally, a lot of rulings I’ve seen in the area rely on a RealEstate.com or Domain search showing rental properties in the area where the practice is.
“We’ve been successful with a private ruling where there was 17 properties in the area around this medical practice, but a lot of them were in a remote area on big blocks of land, or they were lifestyle properties, or they were share housing situations that are not suitable for an IMG [moving with their family].
“That’s probably the one that’s going to tick a lot of the boxes for practices.
“And then the third one is that there’s this frequent relocation of your staff, which essentially might apply to your registrars.”
The final requirement is that the property arrangement must be at “arm’s length” from the employer.
To be clear, the housing benefit does not mean reimbursing the rent that employees incur or reimbursing mortgage payments; the employer must be literally providing accommodation to an employee.
One way that this might work is that the employer rents a property from a landlord and then allows employees to stay there. Another viable situation is that the practice owner leases a property they privately own to the business and the business then allows employees to stay there.
“It also relies on building [rent] into the employee’s salary package,” Mr Leslie said.
“So you essentially adjust their package by the market value of the rent. If you’re just renting off an external third party, you might [say] ‘the rent has cost me $400 a week, so that’s how much we’re going to take out of your pay pre-tax to pay for the rent’.”
