You want to expand into another state and so one of your managers moves to the new location. To sweeten the deal, you start paying employee accommodation. You pay their rent. Sounds straight forward, doesn’t it?
Paying Employee Accommodation
The problem is that the tax status of these rent payments might take a little time to sort out. Paying employee accommodation, you have five options.
Option 1
Your employee rents the house and you compensate them. Either by reimbursing them or increasing their salary or whatever you call this extra payment.
The bottom line is that your employee can’t tax deduct the rent since a private expense. But pays tax on the extra cash you pay them to cover the rent. You on the other hand get to tax deduct everything you pay.
Option 2
You rent the house and your employee pays nothing extra.
Now you are in FBT territory. FBT stands for Fringe Benefit Tax. The rent payment constitutes a housing benefit covered by Division 6 FBT Assessment Act. And so you pay FBT on it.
You get a tax deduction for the full rent as well as the FBT you pay on the rent. Your employee’s tax return is unaffected.
You calculate the FBT as: Taxable value (less employee contribution) x 1.8868 x 47%
So let’s say the annual rent is $10k – no GST since residential rent. In that case you would pay $8,867.96 FBT ($10k x 1.8868 x 0.47 = $8,867.96).
Option 3
You rent the house but your employee reimburses you for the rent. Your FBT is nil: ($10k less $10k) x 1.8868 x 0.47 = nil. Your employee’s tax return is unaffected apart from additional tax on any potential wage increase.
Option 4
This one often gives you the best outcome. You use the temporary accommodation exemption.
You rent the house without any employee contribution. But you keep the arrangement limited to 4 or 6 months while your employee actively looks for permanent accommodation. In that case no FBT to pay and you still get the full tax deduction.
This exemption is usually limited to 4 months but can be extended with an employee declaration to 6 months or even 12 months.
Option 5
This one only applies if your employee keeps their old place and starts living away from home. In that case some or all of the rent and food you cover while away is FBT free as a living-away-from-home allowance for up to 12 months.
Does this make sense? Just give me a call if you get stuck.
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Last Updated on 05 March 2021
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