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In such cases, both the FBT provisions and Division 7A ITAA36 apply (integrity measures that prevent tax-free distributions to company shareholders and associates).



       


Initially, the provision of the accommodation is treated as a residual fringe benefit for FBT purposes as the director is receiving the benefit in their capacity as an employee of the company.  In addition, the benefit is also taken to be a “payment” for Division 7A purposes as it is received by that individual in their capacity as a shareholder of the company.


Is it taxed twice?


In these circumstances, the Division 7A provisions contain a tie-breaker test, which essentially provides that the FBT provisions will prevail in favour of Division 7A.  


Therefore, the company is liable to FBT (as the employer) on the accommodation provided to the director.


The taxable value is ordinarily the market value rent that would apply if the accommodation was provided to a third party. Of course, contributions made by the director towards the provisions of such accommodation will reduce the taxable value of the benefit, and consequently the FBT liability.


 


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22nd-May-2016