• Calculation of exempt food component

    Issue

    Following the amendments to the living-away-from-home provisions clarification is sought as to the calculation of the exempt food component where the food component paid to the employee is more than the reasonable amount set by the Commissioner, but the amount actually spent is less than the reasonable amount set by the Commissioner.

    Background

    For the purpose of the agenda item assume the amount of the food component paid to an employee is $342 per week. This is greater than the interim reasonable food component of $250 for one adult set out in Taxation Determination TD 2012/5.

    The question is how will the exempt food component be calculated and what documentation will be required if:

    • the employee spends the full amount paid (i.e. the amount spent is more than the reasonable amount set by the Commissioner);
    • the amount actually spent by the employee is less than the amount set by the Commissioner (e.g. $208 per week)?  

    Industry view/suggested treatment

    Our understanding is that the taxable value of the allowance will be:

    • nil in the first situation if the amount paid is only for additional food costs (assuming the employee keeps receipts and provides a declaration) or $42 if the amount paid is for all food costs (i.e. includes normal food and drink expenses.
    • $134 ($342 - $208) if a declaration is provided that $208 ($250 - $42) was spent on food in which case the employee will not be required to substantiate the expenses.

    Technical references

    Fringe Benefits Tax Assessment Act 1986 section 31G

    Fringe Benefits Tax Assessment Act 1986 section 31H

    ATO Response

    The exempt food component is so much of the amount of the food component actually incurred on food or drink by the employee during the period to which the fringe benefit relates (which can be substantiated if the amount is more than what the Commissioner considers to be reasonable).

    The calculation of the exempt food component involves the following three steps:

    Step 1: Establish the food component.

    This is the amount of the LAFHA fringe benefit that it is reasonable to conclude is compensation for expenses to be incurred by the employee for food or drink while the employee is living away from home.

    Step 2: Subtract the applicable statutory food total from the food component.

    The applicable statutory food total is:

    the sum of the statutory food amounts of the employee and any eligible family members ($42 a week for each adult and $21 a week for each child)

    less any amount that might reasonably be expected to be the total normal food or drink expenses for eligible family members had they remained living in their normal residence during the period, and was taken into account by the employer in working out the food component.

    Step 3: From the amount calculated at step 2; determine the amount of expenditure incurred by the employee on food and drink. If this amount is more than the Commissioner's reasonable food amount, it must be able to be substantiated.

    Guidance as to the circumstances in which the food and drink expenses must be substantiated is provided in paragraphs 2 and 3 of Taxation Determination TD 2013/4. These paragraphs state:

    Paragraph 2. Where the total of food and drink expenses for an employee (including eligible family members) does not exceed the amount the Commissioner considers reasonable, those expenses do not have to be substantiated under section 31G of the FBTAA. Where an employee receives a LAFHA fringe benefit, for the employer to reduce the taxable value of the fringe benefit by the exempt food component, the expenses must be either:

    • equal to or less than the amount the Commissioner considers reasonable under paragraph 31G(1)(b);
    • substantiated in accordance with the requirements in subsection 31G (2).

    Paragraph 3. If the total of an employee's food or drink expenses exceeds the amount the Commissioner considers reasonable, the substantiation provisions under section 31G of the FBTAA will apply. The exempt food component will be so much of the food and drink expenses (less the applicable statutory food total) that are substantiated by the employee. Where substantiation is required, all food and drink expenses must be substantiated before they can be treated as an exempt food component. Where food and drink expenses exceed the reasonable amount, and are not substantiated in full, the reasonable amount will be exempt, but the employer will be subject to FBT in respect of any excess paid to the employee over the reasonable amount.

    Where the expenditure is less than the Commissioner's reasonable food amount, the employee in completing the Living-away-from-home declaration - employee related expenses will mark the box relating to food or drink that states:

    I have incurred food or drink expenses which do not exceed the amount that the Commissioner considers reasonable based on the number of eligible family members living with me for the above period and therefore I am not required to substantiate these expenses.

    In such a situation where the food component is more than the Commissioner's reasonable food amount the Commissioner's reasonable food amount can be treated as the amount spent on food and drink.

    The calculation of the taxable value for the year ending 31 March 2013 and the substantiation requirements for the example provided in the agenda item can be summarised as follows:

    Calculation if $342 is for total food expenses (ie no adjustment made by the employer for expenses at the normal residence)

    Step 1: Food component $342

    Step 2: Food component - applicable statutory food total

    = 342 - (42 - 0) = $300

    Step 3: As step 2 is more than the reasonable amount, exempt food component will depend upon substantiation.

    If substantiated, exempt food component = $300 and taxable value = $342 - $300 = $42.

    If not substantiated, the exempt food component = reasonable food component = $250 and taxable value = $342 - $250 = $92.

    Calculation if $342 is for additional food expenses (ie adjustment made by the employer for expenses at the normal residence)

    Step 1: Food component $342

    Step 2: Food component - applicable statutory food total

    = 342 - (42 - 42) = $342

    Step 3: As step 2 is more than the reasonable amount, exempt food component will depend upon substantiation.

    If substantiated, the exempt food component = $342 and taxable value = $342 - $342 = $0.

    If not substantiated, exempt food component = reasonable food component = $250 and taxable value = $342 - $250 = $92.

      Last modified: 20 May 2013QC 34349