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Ruling

Subject: FBT- Living away from home allowance

The employee was born in the Country A. He is a citizen of the Country A and holds no other nationality.

The employee arrived in Country B, on a Temporary Business Entry (class UC) business (Long stay) (Subclass 457). This visa is valid for four years.

The employee is in Country B to work under a contract of employment with the employer 2. The employee commenced his employment with the employer 2 . The employment contract does not specify an end date.

In the application the employer 2 has stated that the employee considers that his usual place of residence is City 1. This property has owned by the employee's parents since date B.

In date C the employee left that home to attend University in city 2. He attended that University until date D. He then went for further studies in two other cities till date E. At the end of each term the employee would return to City 1.

In date F the employee moved to City 3. This was as result of his employment and he resided in City 3 till date G.

Between March and September date G the employee resided in the Country C on secondment for then employer 1

For seven months the employee returned to City 3 to work and reside.

The following year the employee retuned to Country C for a further three years on secondment with then employer 1.

Upon completion of the second secondment in Country C the employee returned to City C where he continued working for the employer 1.

The employee was renting a place in City 3 from when he accepted the present position in Country B with the employer 2.

The employee currently lives in City 4. He lives with his girlfriend who is a Citizen of Country B. He intends to move into a rented accommodation closer to City 5 as soon as possible along with his girlfriend.

The employee has stated that:

he does not intend to apply to change his status in Country B (to resident or any other status)

his intention is to continue work in Australia for the duration of his Visa

he intends to stay in Country B for the purposes of working under the contract of employment with Employer 2 as permitted under his visa until it expires.

The employee does not currently own, nor have ever owned any real property in any country.

The employer 2 proposes to pay the employee a living away from home allowance in respect of accommodation. of a set amount per annum. This amount is based upon the employee's actual accommodation expenses. This amount will be $10,000 per annum which will be paid on top of his existing remuneration entitlements.

Question 1

Is the proposed payment a LAFHA?

A payment will constitute a living-away-from-home allowance (LAFHA) benefit under subsection 30(1) of the FBTAA, where:

at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and

it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for:

additional expenses (not being deductible expenses) incurred by the employee during a period; or

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;

According to Fringe benefits tax: a guide for employers (NAT 1054-08.2006), a LAFHA is:

an allowance you (the employer) pay to an employee, and

to compensate for additional expenses incurred and any disadvantages suffered,

because the employee is required to live away from their usual place of residence in order to perform their employment-related duties.

In essence two conditions need to be satisfied before the payment will be considered to be a LAFHA benefit; firstly that the payment is in the form of an allowance paid to an employee, and secondly that it be paid to compensate for additional expenses incurred whilst being required to live away from home.

Is the payment an allowance to the employee?

The FBTAA does not provide a definition for the term 'allowance'. The word is defined in the Macquarie dictionary as 'a definite sum of money allotted or granted to meet expenses or requirements'.

Paragraph 2 of Taxation Ruling TR 92/15, entitled Income tax and fringe benefits tax: the difference between an allowance and a reimbursement, provides the following guidance on the meaning of the term:

A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance.

As the proposed payment will be a definite predetermined amount of $10,000 per annum paid to cover the employee's accommodation costs, it is considered to be an allowance.

Is the employee required to live away from his usual place of residence?

Once it has been established that the employee is being or will be paid an allowance, it is then necessary to determine whether or not the allowance is in the nature of compensation for the expense and disadvantage of being required to live away from their 'usual place of residence'.

'Usual place of residence' is not defined in the FBTAA. However 'place of residence' is defined in subsection 136(1)and states

· in relation to a person, to mean:

· a place at which the person resides; or

· a place at which the person has sleeping accommodation;

· whether on a permanent or temporary basis and whether or not on a shared basis.

Miscellaneous Taxation Ruling MT 2030, entitled Fringe benefits tax: living-away-from-home allowance benefits contains the Commissioner's view on how to determine whether or not an employee is living away from home.

Paragraph 14 from MT 2030 summarises a general principle:

As the decisions illustrate, the question whether an employee is living away from his or her usual place of residence normally involves a choice between two places of residence, i.e., the place where the employee is living at the time or some other place. A person is regarded as living away from a usual place of residence if, but for having to change residence in order to work temporarily for his employer at another locality, the employee would have continued to live at the former place…

In essence, this paragraph effectively states that 'but for' having to relocate temporarily for employment an employee would not have changed their residence and once that temporary employment ceases the employee will return to that residence.

In this case the employee states his parent's home is his usual place of residence. However 'but for' accepting the position in City 5 he would have continued to reside there. This is because he has resided near where has been employed since he left that home to live in City 3 in date F. So on this basis alone it would be difficult to conclude that the employee is living-away-from-home for the purposes of section 30 of the FBTAA.

This view is supported by paragraph 22 of MT 2030 which looks at expatriate employees who are living-away-from-home. It states:

Examples of employees on appointments of finite duration who will generally be living away from their usual place of residence are foreign nationals employed in Australia on a temporary basis and Australian residents (e.g., export consultants, diplomats, immigration officials, etc.) stationed in a foreign country for a time. Provided the appointment is for a limited period and the employee can be expected in the normal course to return to the same city or district of the home country to live, the employee may be treated as living away from his or her usual place of residence.

As the employee came from City 3, for him to be living-away-from-home there has to be an expectation that he will return to City 3 in the normal course when his employment with the employer ceases. This course of action has not been suggested. He has just claimed that the City 1 is his usual place of residence.

The second issue is that for the employee to be living-away-from-home his employment with his employer must be temporary. In respect of temporarily Taxation Ruling TR 2008/9: Income tax: meaning of 'Australian superannuation fund' in subsection 295-95(2) of the Income Tax Assessment Act 1997 contains the Commissioner's view of what constitutes temporarily in paragraphs 155 to 170 and paragraphs 155 to 159 states:

The word 'temporarily' in subsection 295 95(4) of the ITAA 1997 is not defined in the ITAA 1997. Therefore, it takes its meaning from the context in which it appears.

While there is no case law which has considered the meaning of 'temporarily' in subsection 295 95(4) of the ITAA 1997, a number of cases have considered whether a person's absence from Australia was 'temporary' for the purposes of social security legislation. These cases are relevant in the context of subsection 295 95(4), particularly in cases involving SMSFs, because it is the individual trustee or trustees or directors of the corporate trustee of the fund that normally exercises the CM&C of the fund. The cases are also relevant because they consider the meaning of 'temporary' in the context of residence.

In Hafza v. Director General of Social Security (Hafza), Wilcox J considered whether the taxpayer's absence from Australia was 'temporary' for the purposes of subsection 103(1) of the Social Services Act 1947. That section provided that child endowment was not payable to a person outside Australia unless that person's usual place of residence was in Australia or the person's absence from Australia was temporary only.

The taxpayer in Hafza travelled from Australia to Lebanon with her husband and children in April 1978 for a visit which was intended to last for three months. The family however did not return to Australia until June 1982. Upon her return, the taxpayer sought payment of child endowment for the period of absence from Australia on the basis that her absence was temporary only and that she did not cease to have her usual place of residence in Australia.

Wilcox J stated the following in relation to the meaning of the word 'temporary':

…I think that the adjective 'temporary' was used to denote an absence that was, both in intention and in fact, limited to the fulfillment of a passing purpose. The purpose might be of a business or professional nature; it might be for a holiday or for compassionate or family reasons. But, whatever the purpose, it seems to me to be implied in the concept of 'temporary' absence that the absence will be relatively short and that its duration will be either defined in advance or be related to the fulfillment of a specific, passing purpose. If, for example, a businessman travels overseas for a period of three months to engage in sales discussions, intending always to return to his usual home in Australia and in fact returning at the end of that period, there is no difficulty about describing his absence as 'temporary'. If that same person moves himself and his family to an overseas location, intending to remain there indefinitely in pursuit of business orders, his absence would not properly be described as 'temporary'; and I think that this is so even if, after two months for family or personal reasons, he decides to abandon his overseas home and return to Australia. Under such circumstances the absence from Australia would have turned out to be of limited duration, but it would not have been in fulfillment of a passing need.

The intention to return to Australia at the expiration of a particular time being, in recognition of the word 'passing', relatively short - will normally be a feature of an absence which…may properly be described as temporary. There may, however, be exceptions. A person may travel overseas to fulfill a particular purpose which is expected to occupy a relatively short time, the exact extent of which is not known in advance and with the intention thereafter of returning to Australia. An example would be to undertake a particular journey or to attend the bed of a sick relative. I see no problem about describing such an absence as a 'temporary' absence from Australia because it is a short term absence to fulfill a particular purpose.

I think that it follows from my view as to the meaning of the word 'temporary' that the intention of the absentee is of considerable importance; indeed, it will often be decisive. If the businessman on his world sales tour should decide to abandon his plan to return to Australia at the expiration of three months and to remain indefinitely in New York, his absence from Australia will cease to be a temporary absence. It will become an indefinite absence, notwithstanding that it may turn out not to be a permanent absence. Similarly, if an endowee, who has left Australia upon a compassionate visit to a sick relative, should decide indefinitely to stay on at the relative's home after the completion of that purpose, the absence will cease to be temporary notwithstanding an intention eventually to return to Australia. (emphasis added)

On the basis of the facts of the case, His Honour held that the taxpayer's absence, from the time her husband commenced employment in Lebanon (which was sometime in 1979) was not a temporary absence. Some of the important factors that supported this conclusion included the facts that the taxpayer and her husband had no assets in Australia, did not hold return air tickets, that they resided with the taxpayer's husband's family in Lebanon, that the children attended the local school in Lebanon and that the taxpayer's husband engaged in paid employment involving his travelling to a number of other countries.

If we go back to what was quoted in paragraph 159 of TR 2008/9 which Wilcox J stated in relation to the meaning of the word 'temporary' (at 682-683) which states:

. . .I think that the adjective 'temporary' was used to denote an absence that was, both in intention and in fact, limited to the fulfillment of a passing purpose. The purpose might be of a business or professional nature; it might be for a holiday or for compassionate or family reasons. But, whatever the purpose, it seems to me to be implied in the concept of 'temporary' absence that the absence will be relatively short and that its duration will be either defined in advance or be related to the fulfillment of a specific, passing purpose. . .

So following Wilcox J's decision in Hafza v. Director-General of Social Security (1985) 60 ALR 674 (Hafza case), for the employment to be temporary it has to be either to allow the employee to complete a specific task for a relatively short predefined period of time.

The employee has not been employed to perform a specific task and his employment agreement is open ended. The only limitation to the employee remaining employed is that he isn't a citizen of Country B he requires a valid visa to remain in the country.

Given the fact that a visa holder can extend their stay by getting a replacement visa the employee is capable of remaining in the position indefinitely if he and his employer so chooses. In addition it is noted that under the employment contact had the application for the type visa been unsuccessful the employee agreed he would applied for a spouse (de facto) visa instead (which can be either temporary or permanent visas).

Given the fact that the employee's visa can be extended and that the employment contract is open ended the employment is permanent and not temporary. As explained in paragraph 19 of MT 2030 the general presumption is that a person's usual place of residence is near where they are permanently employed. Although the employee has only lived in the City 5 area recently he is permanently employed there and under the general presumption that an employee's usual place of residence is near where they are permanently employed, city 5 is now the employee's usual place of residence.

Conclusion

In summary, even though the proposed payment is an allowance provided to an employee it will not constitute a LAFHA benefit under subsection 30(1) of the FBTAA. This is because:

the employee did not move to City 5 from the residence he considers to be his usual place of residence;

no stated intent to return to the locality he was living in immediately prior to relocating to City 5; and

his employment in City 5 is not temporary.

Question 2

This has not been addressed

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