CASE Y51

Members:
PW Johnston

Tribunal:
Administrative Appeals Tribunal

Decision date: 25 September 1991

---

PW Johnston (Deputy President)

This application is for review of a decision by the respondent to include in the applicant's (``A's'') assessable income for the year ended 30 June 1987 an amount of $7,587.00 paid to A as an allowance, called a ``Location Allowance'', by his employer whilst he was located in Karratha. The respondent did so on

---

ATC 454

the basis that the allowance fell within s. 26(e) of the Income Tax Assessment Act 1936 (``the ITA Act'') which provides for the inclusion in an assessable income of all allowances received by a taxpayer relating directly or indirectly to his employment. The applicant's case is that the allowance in question is specifically excluded from s. 26(e) by virtue of sub-paragraph 26(e)(iv) being an allowance which is a fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986.

2. This is the third application to be decided in a series of cases in which similar issues have been raised before this Tribunal concerning the payment of the same allowance by the same employer at the same location. In each prior application the objection to the inclusion of the allowance in assessable income has been unsuccessful. In Case X41
90 ATC 347 Deputy President Mcdonald held that in the circumstances of the taxpayer in that case the allowance did not constitute a ``living away from home allowance'' such that it should be excluded from the assessable income of the taxpayer. More recently, Deputy President Gerber in Case Y40
91 ATC 393 came to the same conclusion.

3. In this particular matter, the taxpayer represented himself at the hearing whilst Mr Owen-Conway appeared for the respondent. Oral evidence was given by A in support of his case, and by Mr G Sunley from A's former employer and Mr D Parker from the Australian Tax Office. At the outset, the Tribunal received into evidence the documents provided to it pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975. Other relevant materials received into evidence are mentioned herein. The taxpayer had obviously gone to considerable trouble to prepare his case in an orderly way. He had carefully prepared a number of documents for presentation to the Tribunal in support of his case. Unfortunately, not being conversant with legal procedures, it became difficult for him to present his evidence, submissions and argument in the way he had intended. Without intending any criticism of counsel for the respondent, objections were inevitably expressed about admission of considerable portions of the applicant's evidence. This obviously frustrated the applicant. In order to permit the applicant to present his case as he intended, the Tribunal, to remove some of the difficulties encountered with normal adversarial procedures in situations like this, decided to allow the applicant to refer to documents which in normal circumstances would probably not have been admissible, leaving it to later consideration to decide whether any weight should be placed upon particular pieces of evidence. In the case of two contested documents in particular, which will be referred to hereafter as ``the Zorzi Memorandum'' and ``the Scott letter'', Mr Owen-Conway overcame problems about their admissibility and assisted the Tribunal by putting each of those documents (which had been produced by the applicant and marked for identification) to the applicant himself or to the respondent's witness for comment, whilst at the same time maintaining the respondent's objection to both their weight and relevance.

4. The basic facts concerning this application are not in contention and they constitute the primary findings of the Tribunal. They are as follows.

5. On 29 July 1985 the applicant, who was then residing with his family at 3 Teague Street, Victoria Park in the Perth metropolitan area, commenced employment as an engineer with Raymond Engineers Australia Pty Ltd, Perth (hereafter ``Raymond''). Subsequently, the employer changed its name and is now known as Kaiser Engineers Australia Pty Ltd (``Kaiser Engineers''). At the time of joining the company, it was engaged in a joint venture as the main contractor for the North-West Shelf gas project. In May 1986 Raymond gave notice that it required the applicant to relocate to Karratha, being its principal site in the Pilbara region for servicing the project. The applicant had discussions with a Ms Jackie Hill in the Raymond personnel department as to the terms and conditions of employment relating to his assignment to Karratha. The applicant in evidence stated that he had discussed the employment package that was presented to him, having been given an opportunity to look at it. On examination of the package he decided that he would accept it as offered. In all there might have been two or three discussions with personnel regarding the package. As a result of the discussions the applicant received a letter dated 26 June 1986 from Raymond described as a ``Letter of Assignment''. It confirmed further to the previous discussions that the applicant was transferred to Karratha, effective from 16 August 1986. The terms and conditions relating

---

ATC 455

to the assignment were contained in two attachments to the letter, Attachment I being ``Australian Employment Conditions'' and Attachment II being ``Assignment Provisions''. The allowance in issue is described in Attachment II as follows:

``E. LOCATION ALLOWANCE

You will be paid a Location Allowance equivalent to 20% of your Base Salary. This allowance is compensation for the remoteness and conditions prevailing in the Assignment Location. The Location Allowance will continue to be paid on approved absences from the Assignment Location either for leave or work purpose.''

6. The Attachment also stipulates the base salary and calculates the 20% Location Allowance as a flat rate additional to that base salary. Also contained in the Attachment are conditions relating to a large number of other aspects of the applicant's employment including subsidised housing, subsidised electricity, annual leave travel allowance assistance, rest and recreation leave, the cost of airfares, return airfares, both for the employee and his family, emergency leave, educational allowances of dependent children, medical expenses and medical evacuation allowances, equipment allowances and mobilisation and demobilisation allowances. These cover a number of set-up expenses, and expenses incurred in packing personal effects and household goods. As well, travel expenses to the point of origin are covered. Of some significance is an ``Incidental Relocation Allowance'', the purpose of which is stated to be to compensate the applicant for all miscellaneous expenses, not elsewhere specified, connected with preparation for the assignment and miscellaneous expenses connected with the establishment of a house at the assignment location. In addition, an allowance of $600.00 was paid to each employee occupying company-provided accommodation to assist with the purchase of white goods not provided in allocated accommodation. Attachment II to the letter of 26 June 1986 also specified the duration of assignment in the following terms:

``Currently the position to which you are assigned is estimated to be required for 38 months. However this estimation should not be interpreted as a guarantee of a minimum employment period but rather a guide for your information as to the current project planning.''

7. The respondent for its part conceded that living expenses were, to a degree, necessarily higher in Karratha compared with the Perth metropolitan area. It was also common ground that despite the large number of items specifically included in the Attachment, there was no specific allowance for higher fuel and food costs in the location area.

8. In his evidence A conceded that he had accepted the terms and conditions of the contract as set out in the Assignment Conditions. He further indicated that he could not recall specifically the substance of the discussions he had with Jackie Hill, the officer who dealt with him at Raymond's personnel section, and in particular discussing the issue of compensation for higher local expenses.

9. Of curcial importance is the fact that apart from absence on leave A and his family occupied a house in Karratha at 6 Green Court Nickol and that whilst resident in Karratha during the assignment the applicant entered into a lease in about September 1986 letting out his house at 3 Teague Street, Victoria Park intially for a 12-month term, to be renewed thereafter depending on the circumstances.

10. Other facts which are not in dispute are that, as indicated above, the Location Allowance paid during the tax year in question was $7,587.00. Further, the applicant's assignment in Karratha ceased on 16 January 1988 after which he returned to Perth and on 29 January 1988 his employment with Raymond ceased.

11. The issue in dispute is whether the amount of Location Allowance is a fringe benefit in which case it is not liable to tax in the hands of the applicant pursuant to s. 26(e)(iv) of the ITA Act which includes in the assessable income of a taxpayer allowances, not being relevantly ``a fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986''.

12. The relevant statutory framework is as follows:

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

---

ATC 456

``[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.''

Section 30 of the Fringe Benefits Tax Assessment 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 Fringe Benefits Tax Assessment 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
• (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.''

13. Concerning these provisions Deputy President Gerber said in Case Y40 91 ATC 393 (at p. 369):

``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.''

14. Looked at in this way, on the facts found by the Tribunal in the present case the applicant must fail by reason of the fact that he cannot satisfy either of the two statutory requirements laid down in the Act.

15. In the first place, as to whether A was throughout the tax period living away from his usual place of residence I accept the reasoning set forth by Deputy President Gerber in paragraphs 10 and 11 of his reasons in Case Y40, at p. 396. Even though the applicant, notwithstanding that he had let his home at 3 Teague Street, Victoria Park, continued to regard it as his normal home (in the sense of the place to which he always returned after undertaking employment/assignments elsewhere), the simple fact of the matter is, viewed objectively, during the tax year in question he was actually residing at the Assignment Location in Karratha. That was where for everyday purposes he lived and where he maintained his home for the duration of the assignment period. That was where his wife and children resided and from where they conducted their day to day activities including attending school. Looked at in terms of the period specifically in issue, the Tribunal finds that in that period his ``usual place of residence'' was in Karratha. It is axiomatic, given that conclusion, that during that period he was not living away from his usual place of residence in order to perform the duties of his employment, as would be required to satisfy s. 30(b).

16. In passing the Tribunal would comment that even if the applicant could distinguish his situation from that of the taxpayer in Case X41 decided by Deputy President McDonald, insofar as the taxpayer in that case did not

---

ATC 457

maintain any substantial connection with a house at a place other than Karratha, the applicant's situation is in substance indistinguishable from that of the taxpayer in Case Y40 and since the Tribunal fully accepts as correct the reasoning of Deputy President Gerber in the latter case, it must come to the same conclusion that the applicant cannot succeed in this application.

17. The applicant may consider this conclusion inconsistent with Taxation Ruling No MT 2030 dated 30 September 1986 and particularly paragraphs 20 and 22 thereof on which he relied at the hearing. The Tribunal would comment that whilst some statements in that ruling might appear to give support to the applicant's contentions, those statements are in fairly broad terms intended only to have illustrative effect. There is no necessary conflict with the conclusions reached by the Tribunal in the specific circumstances of this and the earlier decisions. Even if there were (which might cause some embarrassment for the respondent) the ruling has no prescriptive legal force and cannot bind the Tribunal.

18. That conclusion concerning the applicant not living away from his usual place of residence is sufficient to dispose of this application. Since both parties devoted considerable effort and attention to the other major issue, namely whether, for the purposes of s. 30(b)(ii) of the Fringe Benefits Tax Assessment Act the allowance -

``is in the nature of compensation to the employee for -

• ...
• (ii) additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject, during a [relevant] period.''

the Tribunal should address that issue also.

19. Again in relation to this aspect of the matter, the applicant has failed to persuade me that the conclusions drawn by Deputy President McDonald in Case X41 and Deputy President Gerber in Case Y40 are incorrect and should not be followed. In this regard it must be remembered that the applicant bears the onus of satisfying the Tribunal that the nature of the Location Allowance is as he contends.

20. The Tribunal must approach this matter objectively: whatever the subjective views of A or anyone else may be they cannot determine the issue. In this instance, the Tribunal treats as its starting point the actual formulation of the allowance as set forth in paragraph 5 above. It notes the following features. First the allowance is a flat rate calculated as a percentage of the base salary. The evidence before the Tribunal, which is not disputed, was that the same rate is applied to all recipients of the allowance. There is no differentiation on the basis of salary. Nor is there in respect of the specific circumstances of each recipient. In the case of A the allowance does not take into account whether he is single, married, has one child or 15. There is in that sense no attempt to build into the formula gradations of the allowance according to the additional expenses that would be generated by the particular household dependent on the recipient. This is consistent with the evidence received by the Tribunal which was not contested by A. He conceded that there was no attempt by the company either in his case or of other employees located at Karratha generally, to compute the actual amounts of whatever additional expenses were incurred by them.

21. A second feature of the terms in which the Location Allowance is expressed is that it is said to be for ``compensation for the remoteness and conditions prevailing in the Assignment Location'' (emphasis added). This statement of purpose, whatever its intended or actual meaning, must be given primacy in construing the nature of the allowance. The Tribunal attaches more significance to it than to any other collateral or extraneous explanations, whether oral or set forth in letters or other documents. It would comment that the terse statement, as it stands, is not particularly revealing. To speak of ``remoteness'' and the ``conditions prevailing'' in the location is somewhat equivocal. Both expressions could conceivably be interpreted elastically to include reference to additional expenses and other kinds of disadvantage. But there is no clear pointer to warrant that conclusion. Whilst not particularly informative, there is nothing in the formulation to give the applicant an unequivocal or persuasive basis for sustaining the onus he bears in having to satisfy the Tribunal that his interpretation should be accepted by the Tribunal.

---

ATC 458

22. What does emerge from Attachment II and which was the subject of some detailed analysis in Case X41, is that the Location Allowance is not an orphan standing in isolation. In regard to context, it stands in juxtaposition with a large number of other items where the employer either provided A directly with a benefit (such as the use of a company car) or made provision by way of subsidies. Given the specificity and wide ranging nature of those particular expenses borne effectively by the employer the proper conclusion to be drawn, if regard is had only to the terms of the actual contract of assignment, is that overall the Location Allowance could not have been intended to be compensation for additional expenses or disadvantage incurred by reasons of being required to reside at Karratha.

23. In an attempt to persuade the Tribunal as to which of their contending views about the character of the allowance in question was to be preferred, the parties each sought to introduce documentary materials extrinsic to the contract of assignment to support their respective cases. The Tribunal should say straight away that none of the materials furnished to it in this category, supplemented in some instances by oral evidence, has had any significant impact on the conclusions that it has reached.

24. In the first place, A put some documentary material before the Tribunal relating to his employment with a company Citra Constructions Ltd (``Citra'') also in a North-West location, prior to his engagement with Raymond. From these materials, A asked the Tribunal to draw two conclusions. The first was that various names were given by different employers to living away from home allowances but in substance they were the same thing. This point, for what it is worth, is not really in contest. As pointed out by the Tribunal during the hearing, there is no particular magic in a name or label and the Tribunal is not likely to be beguiled into some misunderstanding of the nature of an allowance by what it may be called. The second point, as submitted by A, was that if the respective terms and conditions on which he was employed with Citra were compared with those in his contract of assignment with Raymond, parallels could be drawn between the two to demonstrate that there was a common understanding among employers of personnel engaged in the Pilbara about the nature of these locational or regional allowances. But to engage in such a comparison is both distracting and fallacious. It distracts the Tribunal from the essential task of determining the true character of the allowance paid by Raymond. It also entails a fallacy for even if one could accept the assumption that the two allowances were identical, not only in terms but in their operation, one would still have to ascertain unequivocally what was the character of the Citra allowance before drawing the conclusion that the same character should be attributed to the Raymond allowance. There are simply too many ``ifs'' and ``buts'' involved for the Tribunal to pursue that line of enquiry. The Tribunal accepts as correct the respondent's submission that the Tribunal should have no regard to matters concerning A's prior employment conditions.

25. The next document relied on by the applicant was a memorandum dated 28 November 1983 to various senior officers in Raymond from Mr P Zorzi. It concerned employment policy for persons engaged in Karratha. It spoke of various disparities in conditions of employment between certain employees of the company in Karratha and then went on to recommend a policy with respect to ``local hire employees'', these falling into two categories; namely, those who were prospective employees who in fact owned or were purchasing a home at the time an offer of employment was made, and those renting accommodation in the Karratha area. In respect of each an area allowance of 15% of base salary was recommended to be paid. In A's eyes this memorandum was the genesis of what came to be the Location Allowance of which he was a recipient under his contract of assignment several years later. It was ``quite clear'', he asserted, that the purpose of the latter allowance, as it could be gleaned from the Zorzi memorandum, was to compensate employees living in Karratha for the greater costs that were incurred. But again even if the Tribunal puts aside the guidance afforded by the normal rules of evidence which in a court of law would otherwise restrict the admissibility of this document, the Tribunal has come to the conclusion that it is not a document to which any persuasive weight can be given. Just as a palaeontologist needs to trace the missing links between an ape-like skull and homo sapiens if she wants to claim that the skull is from an ancestor of modern human-kind, the applicant

---

ATC 459

in this instance must show that what appears only as a policy recommendation in the memorandum was in fact implemented by the company, and moreover was implemented precisely for the reasons stated in the memorandum and for no other. He would also have to establish that there was a true identity between the kind of allowances spoken of in the memorandum and the one that he received. In this respect he encounters the insurmountable difficulty raised by Mr Owen-Conway on behalf of the respondent that the categories of employees dealt with in the memorandum are not of a kind to which A belonged. Hence there are several flaws in the applicant's attempt to draw a direct lineal descent from the memorandum to the condition relating to the Location Allowance in order to find explanatory force in the former.

26. The applicant also sought support for his position from a letter dated 14 August 1989 from Kaiser Engineers to accountants Price Waterhouse signed by a Mr S Scott of the Kaiser Personnel Department (``the Scott letter''). That letter is in fairly general terms. In it, the writer states that the ``Location Allowance is designed, in a general sense, as an incentive for an employee to work away from major urban centres and is paid whether the employee is relocated to the subject location or not''. The applicant sought to persuade the Tribunal that the letter can be read as possibly contradicting a letter from a Mr R McIntyre, the Director of Finance and Administration with Kaiser Engineers to the Deputy Commissioner of Taxation dated 23 December 1988 which in response to a query from the Australian Taxation Office about the nature of the allowance paid to the taxpayer stated that:

``In other words it forms part of the salary for the individual for the term of his assignment at the location.''

This letter was relied on by the respondent to support its contentions about the nature of the allowance.

27. Mr Owen-Conway objected to the admissibility of the Scott letter. Alternatively he suggested the Tribunal could place no weight on it. The Tribunal in fact is not disposed to place any reliance on either the Scott letter (which in any event is somewhat equivocal and can be read to support either side), or the letter from Mr McIntyre. The authority of Mr Scott to make a binding statement on behalf of the employer concerning the nature of the allowance is questionable, on the one hand, and on the other, so far as the second letter is concerned, the Tribunal is inclined to approach with considerable reserve a letter from the employing company which post-dates the contract in question by some years and where, subsequently to the making of the contract of assignment, there was a change to the tax legislation that was not within the contemplation of the parties when the contract was made. This is particularly so where that change has the consequence of rendering the company liable to taxation should the applicant succeed in this application. Again, the Tribunal sees the actual terms of the contractual arrangements surrounding the payment of the allowance, set in their contemporary context, as providing the major source of objective guidance for the determination of this application. Viewing these items of correspondence overall, the most that can be said of them is that they present a rather confusing picture.

28. In like manner, the Tribunal has derived no primary interpretive assistance from evidence led by the respondent from Mr G Sunley, the Chief Accountant and Public Officer of Kaiser Engineers. Mr Sunley's evidence was given in amplification of a letter dated 12 February 1991 he had sent to the Australian Taxation Office. That letter was sent in response to an enquiry addressed by that office to Mr S Scott of Kaiser Engineers (which may seem somewhat ironic given that the respondent later objected to Mr Scott's authority to provide answers on behalf of the employer). In his letter, Mr Sunley states:

``It is my understanding that the location allowance paid to [A] was to compensate him for working in a remote location and for the lack of facilities at the location.''

In his oral evidence, Mr Sunley indicated he did not believe that the interpretation of the nature of the allowance suggested in the Scott letter was correct.

29. As already stated, the Tribunal does not rely on the evidence mentioned in the previous paragraph in forming its view of the reasons for which the allowance was provided. It takes the view on the facts properly before it that the allowance was an incentive by way of

---

ATC 460

additional salary to attract assigned personnel to an area where there were problems of remoteness, including some broad aspects of higher costs of living, which might otherwise make such an assignment unattractive.

30. The applicant also furnished to the Tribunal a large amount of information relating to the increase in costs which he claimed he and his family had incurred during the period of residence in Karratha. The respondent in fact conceded that items such as food would have been something of the order of 13 to 15% higher in Karratha when compared to metropolitan prices. However what the actual experience of the applicant was after taking up residence in Karratha cannot govern the interpretation of the agreement into which he entered prior to taking up that residence. In particular, it is of no assistance to the Tribunal for A to provide it with a reconstruction of what, by his estimates of extra costs of living, based on discussions with his wife and by reference to payments made by them, the extra costs of living in Karratha, so far as his family was concerned, were. The fact is that those costs, which were specific to the circumstances of his particular family, would have had no necessary relationship to the circumstances of other persons, perhaps single employees without children, but who were entitled to that allowance at the same rate. The Tribunal cannot frame a general proposition about the nature of the allowance by induction from his particular circumstances.

31. Of the other matters raised by the applicant, only one in the opinion of the Tribunal should be seen to lend any support to his contentions. He submitted to the Tribunal that because Raymond had required him to fill out a declaration to the effect that he was required to live away from his usual place of residence during the period of his engagement in Karratha, and that such a declaration was sought subsequent to the introduction of the Fringe Benefits Tax Assessment Act, this amounted to a concession by the employer that it was paying a living away from home allowance which was in fact a fringe benefit and which should not therefore be included in his assessable income. As the Tribunal understands it, that declaration was essentially concerned with the provision of housing accommodation to employees of the company and its significance must be understood in the context of the application of the Fringe Benefits Tax Assessment Act to that situation. Such a declaration is not necessarily conclusive of the issue specifically before this Tribunal. Although the Tribunal has given careful consideration to this aspect of the matter and is not inclined to dismiss the declarations as having no probative significance at all, considered in the overall context, the single factor of those declarations is not sufficient to tip the balance in favour of the applicant.

32. In the end therefore, although there are some variations in the way this application was presented and argued when compared with the two similar applications previously decided, the outcome in this case, as already stated, is no different from the conclusions reached in those decisions. Although the Tribunal, because of the applicant's lack of legal representation, permitted him a wider ambit in which to explore the critical issues, none of the additional matters canvassed by him carried sufficient weight or relevance to affect the outcome. The decision under review is therefore affirmed.