Edited version of private ruling

Authorisation Number: 1011568352062

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Ruling

Subject: Living away from home allowance

Question 1

Is the proposed allowance a living away from home allowance (LAFHA) pursuant to subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

If the answer to question one is yes, is the taxable value of the LAFHA fringe benefit reduced to nil by the exempt accommodation component pursuant to section 31 of the FBTAA?

Answer

Yes

This ruling applies for the following period:

Year ending 31 March 2011

Year ending 31 March 2012

The scheme commences on:

29 June 2010

Relevant facts and circumstances

The employer principle business location is situated at town in a state in Australia.

The employee was appointed on a fixed term contract ending on 28 June 2011.

The employee's family home is situated in another state of Australia.

The employee's wife and child reside at the family home.

The employee's wife is engaged in full time employment near the family residence.

The employee's child attends school in the local area.

The employee's family residence is situated four hour travelling distance from the employer's business premises.

The employee rented a property near the employer's business premise.

The employee travels between the rental property and his family home each weekend:

Monday to Friday - residing in rental property.

Saturday & Sunday - residing in family home.

The rental cost of the rental property is $130 per week.

The employee provided the employer with a LAFHA declaration declaring his usual place of residence as being the location of the family home.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 30(1),

Fringe Benefits Tax Assessment Act 1986 Section 31,

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1), and

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Question 1

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;

Paragraph 2 of Taxation Ruling MT 2030 provides guidance on how the Commissioner determines whether an employee is living-away-from-home. It states:

A living-away-from-home allowance exists where it is reasonable to conclude from all the surrounding circumstances that some or all of the allowance is in the nature of compensation to the employee for additional expenses incurred, or additional expenses incurred and other disadvantages suffered, because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment. Additional expenses do not include expenses for which the employee would be entitled to an income tax deduction.

Therefore for a payment to be a LAFHA for the purposes of the FBTAA the following conditions must be satisfied:

· it is an allowance paid by the employer to the employee in respect of the employment of that employee;

· the employee is required to live away from their usual place of residence so as to be able to perform the employee's duties of employment; and

· that the whole or part of that allowance is in the nature of compensation for non-deductible additional expenses that the employee incurs, or for non-deductible additional expenses and additional disadvantages arising, as a result of having to live away from home to perform the duties of employment.

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 accommodation allowance is a definite predetermined amount paid to cover an estimated expense, in this case the employee's accommodation costs, it is considered to be an allowance. This is not altered by the fact that the amount MIL is paying is based on actual costs expected to be incurred by the employee. There is no requirement for him to account for the amount he spent on rent. How he chooses to spend the amount he receives is his decision.

Therefore the payment conforms to the definition of allowance.

Is the employee required to live away from their usual place of residence to perform the duties of their employment?

For the purposes of the FBTAA a place of residence is defined in subsection 136(1) as:

· in relation to a person, means:

· 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.

In respect of residence paragraph 12 of MT 2030 states:

A place of residence of a person is thus the place where he or she resides or has some form of sleeping accommodation. The customary meaning of the word "reside" is to dwell permanently or for a considerable time, or have one's abode for a time. In turn, "residence" means the place, especially the house, in which one resides; a dwelling place; or a dwelling.

Following this definition the employee currently has two places of residence, one near where he is employed and the other where he resided with his family.

What needs to be determined in this case is which of these residences is the employee's usual place of residence. This is necessary to determine whether he is living-away-from-home. Whether an employee is living-away-from-home is a question of fact and MT 2030 provides guidance on how the Commissioner determines whether an employee is living-away-from-home. Paragraphs 14 and 19 provide the following:

14. … 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. It would be relevant in reaching that view that there is an intention or expectation of the employee returning to live at the former place of residence on cessation of work at the temporary job locality. This would be relevant even if the employee is living in temporary quarters close to a temporary job site. …

19. An underlying theme … is a general presumption that a person's usual place of residence will be close to the place where he or she is permanently employed. Correspondingly, an employee who changes his or her place of residence because of a change in the location of a permanent job, whether by reason of a transfer with the same employer or a change of employment, would not usually be living away from home on moving to a new place of residence close to the new job location. That would be the case notwithstanding that the new place of residence was a temporary one pending the obtaining of suitable long term accommodation.

These paragraphs of MT 2030 give rise to the following general principles:

The employee needs to demonstrate that the employee is only working temporarily at the new location and will return, or there is a legitimate expectation of a return, to live at the former place of abode on cessation of work at the new location.

Whether an employee is living away from the employee's usual place of residence depends on all of the facts of the particular case and is not solely dependant on whether the person is merely living away from the employee's 'point of origin'.

In this case:

The need for the employee to acquire a place of accommodation close to his place of work, is necessitated by the requirement to be at his place of employment to perform his duties. The distance makes it impractical for him to commute between his home and the place of employment every day.

The term of the employee's employment is for a limited duration.

The employee maintains connection with his home which he considers as his usual place of residence. This is evidenced by the fact that his wife and child continue to live there and he returns to that home on weekends.

The employee has stated his intention to return to live at his home on the expiry of his term of employment on 28 June 2011.

All the above factors lead us to the conclusion that home is the employee's usual place of residence and that he is required to live away from his usual place of residence to perform the duties of his employment.

Is it reasonable to conclude that the allowance is in the nature of compensation for additional non-deductible expenses?

The proposed allowance is to cover estimated accommodation expenses of the employee which is non-deductible expenditure.

Therefore this condition has been met.

Conclusion

The proposed payment by the employer to the employee is considered to be a LAFHA pursuant to section 30 of the FBTAA.

Question 2

Section 31 of the FBTAA explains how to determine the taxable value of a LAFHA. The taxable value is in effect the amount of the allowance less the:

· the exempt accommodation component; and/or

· exempt food component.

The exempt accommodation component is defined in subsection 136(1) of the FBTAA in part as:

so much (if any) of the recipients allowance as it would be concluded is in the nature of compensation to the employee for additional expenses that might reasonably be expected to be incurred by the employee in respect of the subsistence during the recipients allowance period of a lease or licence in respect of a unit of accommodation for the accommodation of eligible family members.

This means that in this case the exempt accommodation component is the expenses that are reasonably attributable to the rental of the property near his place of employment.

The rental expenses the employee incurs would be additional expenditure and therefore his rental expenses are additional expenses in respect of the rental of a unit of accommodation during the period the employee is living-away-from-home.

The rental cost of the property is $130 per week and the employee is receiving $6760 per annum for his accommodation expenses, which equate to the same amount. As a result the $6760 per year is considered to be a reasonable amount in respect of the subsistence of a lease or licence in respect of a unit of accommodation.

Therefore the exempt accommodation component is the whole of the accommodation allowance and so the taxable value of the accommodation component of the LAFHA is reduced to nil.

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