Buying a house for your employees to reside in

[Pitts]

Hey all,

My employer is part of an international company which subsidies housing for their employees. I was wondering if its possible for small businesses to do the same; ie buy a house for their employees to rent at low market value?

What would be the tax and legal implications?

Any thoughts?

cheers,
Pitts

 

[DaleGG]

Hi

Yes, it is possible for a small business to do this and claim the negative gearing advantages against the business profits.

However, if the house is rented at less than market rates then the business will have provided a fringe benefit and so the business will have to FBT each year.

Dale

Hey all,

My employer is part of an international company which subsidies housing for their employees. I was wondering if its possible for small businesses to do the same; ie buy a house for their employees to rent at low market value?

What would be the tax and legal implications?

Any thoughts?

cheers,
Pitts

 

[RichardC]

My thoughts are the same as Dale's: The difference between actual rent paid and "fair market" rent would be a fringe benefit. The difference between "fair market" rent and actual costs could be as normal -ve gearing.

I know I haven't added anything new, just agreement with the earlier post.

 

[michaelg]

Dale,

I thought the whole rent would incur FBT?

If the accomodation is not deem living away, but just a rental, I would have thought the whole benefit would incur FBT, not just the difference between market and actual?

Michael

 

[DaleGG]

Hi Michael

No, it should not. FBT is a tax on a benefit provided in lieu of salary and harks back to the days of very high tax rates and the ability for high inocme earners to package their salary so that they paid little tax.

The benfit in this case is the difference between market rates of rent and the actual rent paid by the tenant/employee.

Section 26 of the FBTAA shows:

SECTION 26 TAXABLE VALUE OF NON-REMOTE HOUSING FRINGE BENEFITS



26(1) [Method of calculation]
View History
Subject to this Part, the taxable value of a housing fringe benefit provided in respect of the employment of an employee in relation to a year of tax is:


(a) where the recipients unit of accommodation is not located in a State or internal Territory - so much of the market value of the recipients current housing right as exceeds the recipients rent»;

I hope that this clarifies the issue for you.
Have fun

Dale

Dale,

I thought the whole rent would incur FBT?

If the accomodation is not deem living away, but just a rental, I would have thought the whole benefit would incur FBT, not just the difference between market and actual?

Michael