Case Y40

Members:
P Gerber

Tribunal:
Administrative Appeals Tribunal

Decision date: 7 August 1991

Dr P Gerber (Deputy President)

I am able to give my decision in this case here and now. However, I have been advised that notwithstanding Deputy President McDonald's clear analysis, in Case X41,
90 ATC 347, of the tax consequences of a payment of the kind involved in this application, there are other cases in consimili casu ``in the pipeline'', each claiming to be ``unique''. I therefore propose to expand on my oral decision and to hand down more elaborate reasons in writing, hopefully to settle this dispute once and for all.

2. The taxpayer in this case (``T'') is an engineer by profession who accepted an appointment with Raymond Engineers Pty Ltd in December 1980. A few weeks later he bought a home in Thornlie, a suburb of Perth. The material facts are not in dispute. T took a temporary transfer to the company's Karratha office between November 1983 and October 1984, where the company was engaged in providing professional services in connection with the Woodside North-West Gas Shelf project. Karratha is some 1,500 kilometres north of Perth. The evidence suggests that Karratha is a town whose permanent population is small and its amenities sparse. For the eleven months or so that T resided in Karratha on this occasion, he let his home in Thornlie. T returned to his job in Perth after this first stint in Karratha in October 1984 and remained in Perth until August 1985 when he returned once again to Karratha. On this occasion, T received a ``Letter of Assignment'' from the employer dated 6 August 1985, which sets out the terms and conditions of his Karratha employment. It is, for all relevant purposes, a new contract of employment, listing the additional benefits, compensation and allowances payable to all employees working in Karratha. An attachment to the ``Letter of Assignment'' provides, inter alia, under the heading ``Compensation'', that:

``Employees will be paid a Location Allowance equivalent to 20% of Base Monthly Salary. This Allowance is compensation for the location, the remoteness of the location, and the conditions prevailing at the Project work site. The Location Allowance will apply for the full term of the assignment, commencing at the start of authorised travel time, ceasing at the completion of


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authorised travel time at the satisfactory completion of the assignment.... Housing will be provided and allocated by the Company, based on accommodation available at the time of assignment.... the employee's obligation and contribution towards the cost of housing and utilities shall not exceed 10% of base salary.''

3. It was common ground that there were other benefits, such as the provision of a company car, an expense allowance ($1,080 p.a.) etc. Indeed, it was conceded that apart from the additional cost of food and petrol, T was financially substantially better off working on the Karratha project than had he remained at his old job in Perth.

4. In January 1986, T was promoted to a more senior appointment with the company. The new ``Letter of Assignment'' provided identical benefits to those set out in the previous ``Letter of Assignment'' (although there were minor changes made subsequently by letter dated 7 April 1986 described as ``Changes to Assignment Conditions''). I have carefully perused this last document and, notwithstanding the taxpayer's argument addressed to me as to its relevance to these proceedings, I have not been satisfied that, for tax purposes, anything turns on these ``changes'', which, for fiscal purposes, remained essentially the same as those set out in the earlier Letters of Assignment, save that the new terms of employment resulted in an increase in salary (and thus an increase in the living-away-from-home allowance, being based on 20% of salary).

5. To complete the factual narrative, T remained in Karratha until April 1989, when he returned to Perth, retaining his employment with the same employer. For the whole period T resided in Karratha, the Thornlie home was let to tenants.

6. Turning to the issue in dispute, in the 1988 tax year T received an amount of $10,185 from his employer, described as a ``living-away-from-home allowance'', which T has persuaded himself constitutes a fringe benefit, and thus not liable to tax pursuant to sec 26(e)(iv) of the Income Tax Assessment Act, which includes in the assessable income of a taxpayer allowances, not being, inter alia, ``a fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986'' (``the Act'').

7. Section 23L(1) of the Income Tax Act provides:

``[Fringe Benefits] Where the taxpayer derives income by way of the provision of -

  • (a) a fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986; or
  • (b) a benefit... that, but for paragraph (g) of the definition of `fringe benefit' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986, would be a fringe benefit within the meaning of that Act,

the income is exempt income.''

8. Section 30 of the Act provides:

``Where -

  • (a) at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and
  • (b) it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for -
    • (i) additional expenses (not being deductible expenses) incurred by the employee, during a period; or
    • (ii) additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject, during a period,

    by reason that the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment,

the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time.''

Section 136 of the Act defines a ``living-away-from-home allowance benefit'' to mean ``a [fringe] benefit referred to in section 30'' and ``place of residence'' to mean:

  • ``(a) a place at which the person resides; or

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  • (b) a place at which the person has sleeping accommodation,

whether on a permanent or temporary basis and whether or not on a shared basis;''

9. The statutory scheme is clear: for the employee to attract the benefit of the exemption, it is a condition precedent that the employee is required to live away from his/her usual place of residence in order to perform the duties of the employment and the allowance must be wholly or partly compensation for the additional (non-deductible) expenses and/or additional disadvantages incurred during the relevant period. Applied to this case, this taxpayer has been unable to demonstrate either of the statutory requirements demanded by the Act.

10. I accept T's evidence that when, in the relevant period, he took on an assignment from his employer to work in Karratha, he did not move to that town with any intention of residing there permanently. I furthermore accept that he regarded Perth as his permanent place of abode - to borrow a concept from the conflict of laws, I am satisfied that one would regard him throughout the relevant period as ``domiciled'' in Perth - T's involvement in the Woodside North-West Gas project was of a temporary nature and his permanent home, albeit leased for the duration, was in Perth, a town to which he and his family intended ultimately to return on the completion of the Karratha assignment. None of the above finding, however, can in any way derogate from the conclusion of law that when he agreed to work in Karratha, having let his home in Thornlie to take up residence there, he not only changed his place of work, but his place of residence. On this finding, T did not, during the relevant period live away from home, and his ``usual place of residence'' was Karratha. How then, one may ask, can the impugned payment possibly be characterised as a ``living-away-from-home'' allowance? For good measure, the payment is struck as a percentage of salary and is payable to all staff working for this employer in Karratha, including ``locals'' who live and work permanently in that town. Indeed, on one view, T was a ``local'' when he accepted a new contract of employment in 1986 at a time when he was already a resident of Karratha.

11. On the whole of the evidence, I am satisfied that any finding other than that T was living in Karratha from August 1985 to April 1989 would be perverse. He was thus not ``living-away-from-home'' as the Act requires - he had no other home than in Karratha; the Perth home being leased. T's submission that he continued to pay the rates and interest on his mortgage on the Perth home are fiscally irrelevant (save that they are tax deductible since rent from property is income, factors which appear to have escaped the notice of the tax agent who prepared the return). In the circumstances, I see no need to have recourse to dictionary definitions of terms such as ``usual'' and ``residence'' through which I was taken in a thorough submission by Mr Owen-Conway, of learned counsel for the Crown. I am satisfied that the statutory relief provided for by sec 23L(1) of the Income Tax Act is designed to deal with a situation where a man is compelled to live away from his home for purposes of his work and thus compelled to maintain his home whilst living in another. ``A man's residence, where he lives with his family and sleeps at night, is always his place of abode in the full sense of that expression'' (per Lord Campbell,
R v Hammond (1852) 17 QB 772). That finding concludes the case against the applicant.

12. In deference to the thorough submissions put to me by both parties, I will deal with the other limb of the relevant section which demands that the payment, to constitute a fringe benefit, must be compensation for the additional expenses or disadvantages incurred by virtue of the employee being required to live away from home. Indeed, as noted in paragraph 3 above, the taxpayer was financially better off living in Karratha than had he remained with the company in Perth. In any event, the internal correspondence between the employer and the respondent, which formed part of the ``T'' documents, makes it clear that the additional salary paid to all employees in Karratha was paid to attract - and keep - employees in the remoteness of Karratha. Mr Owen-Conway, who also appeared for the respondent in Case X41 (supra) made a like submission before Deputy President McDonald, who upheld it.

13. For the sake of completeness, I should note that the Act speaks of ``other additional disadvantages to which the employee is subject during a period''. These words were held to


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take a deductible allowance beyond the narrow ``additional expenses incurred'' by virtue of being required to live away from home. Thus in
Atwood Oceanics Australia Pty Ltd v FC of T 89 ATC 4808, Lee J, in dealing with sec 30 of the Act, stated (at p 4816):

``The required character of the allowance was that it be a payment to an employee in the nature of compensation for additional expenses incurred by the employee during a period of employment, or for additional expenses so incurred and other additional disadvantages to which the employee was subject during that period by reason of the fact that the employee was required to live away from his usual place of residence. It may be accepted that the words `other additional disadvantages' were not intended to be restricted to disadvantageous pecuniary results.''

(my italics)

Accepting that ``other disadvantages'' clearly go beyond additional expenditure attributable to the remote area, whatever one may ascribe to these ``other disadvantages'', they are clearly predicated upon disadvantages which flow from an employment which requires the employee to live away from home. Having found that this taxpayer does not ``live away from home'' within the meaning of the Act, he can seek no comfort from that part of the section which extends deductibility to allowances which compensate for non-pecuniary disadvantages.

14. For the above reasons the objection decision is affirmed.


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