Edited version of private ruling

Authorisation Number: 1011587319898

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Ruling

Subject: Living away from home allowance

1. Is our employee considered to be living away from his usual place of residence for the purposes of section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Yes.

2. If the answer to question 1 is yes, is the proposed allowance a living-away-from-home allowance (LAFHA) pursuant to section 30 of the FBTAA?

No.

3. If the answer to question 2 is yes, will the taxable value of the allowance be reduced to nil pursuant to section 31 of the FBTAA?

Not applicable.

This ruling applies for the following period:

Year ending 31 March 2011

The scheme commences on:

Year ending 31 March 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The employee is currently employed in Australia and holds a 457 Temporary Business, Standard Business Sponsored visa.

The employee travelled to Australia with his partner on a working holiday visa. They planned to spend a year working and travelling through Australia.

Immediately prior to coming to Australia the employee was living in his parents home overseas.

The employee commenced employment with the employer.

The employee and his partner returned home to country of origin believing this to be a permanent return, but in fact was only for two weeks.

The employer asked the employee to return to Australia to work for them. The employee accepted and restarted working for the employer in an employer sponsored (457 visa) position to present.

The employee anticipates that he will be leaving Australia when his visa concludes, and will return to live in the parental home in his country of origin.

The employee currently resides with his long term partner and has for the entire duration of his stay in Australia.

The employee's mother, father and siblings all currently reside in his country of origin.

The employee has no current investments in Australia.

The employee will complete a LAFHA declaration pending the ATO response to this application for a private ruling.

The proposed LAFHA will be $862 per week deduction to taxable income.

The reason for paying the LAFHA is that the employer believes that the employee is eligible for a LAFHA as he incurs costs and expenses that he would not incur should he reside in his country of origin.

The accommodation component of the proposed LAFHA is $495 being the amount of the current weekly rent of leased property.

The food component of the proposed LAFHA is $367 being food component for two adults derived from ATO fringe benefits rates and thresholds in Taxation Determination TD 2010/4.

The accommodation and food components are the only components of the proposed LAFHA.

The LAFHA is not in addition to the employee's salary. The LAFHA will be incorporated in the employee's salary package and will be calculated as a tax exempt deduction to taxable income and will not be an allowance paid in addition to the employee's salary.

The proposed LAFHA will not be paid by way of a purported salary sacrifice arrangement.

A copy of the employment contract has been provided.

Copies of 417 and 457 visa's also supplied.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 30.

Reasons for decision

Is the employee considered to be living away from his usual place of residence?

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

in relation to a person, means:

(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.

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 a place of residence in Australia near where he is employed and also in his country of origin where he resided with his parents.

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'.

MT 2030 provides the following on the subject of overseas appointments of a finite duration:

20. Employees who move to a new locality to take up a position of limited duration with an intention to return to the old locality at the end of the appointment would generally be treated as living away from their usual place of residence.

22. 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.

The employee's 457 visa is for a finite period of four years. The employee has expressed an intention of returning to his former residence in his country of origin at the expiration of this 457 visa.

However, the time limit on the current 457 visa does not in itself mean that that the duration of the appointment is for a limited period.

The employment contract between the employer and the employee is for a finite period of four years.

From the above it can be concluded that the employee is only working temporarily in Australia and that there is a legitimate intention to return to live at his usual place of residence in his country of origin at the cessation of his current employment.

The employee is therefore considered to be living away from his usual place of residence.

Is the proposed allowance a living away from home allowance?

Section 30 of the FBTAA sets out the circumstances in which a payment by an employer to an employee will qualify as a LAFHA.

Subsection 30(1) states:

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.

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 proposed payment an allowance being paid in respect of the employee's employment?

Paragraph 2 of Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement describes as allowance as:

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.

The proposed payment is to cover an estimated expense. However, you have advised that it is not proposed to pay the employee an allowance on top of his salary and that it is not proposed that the employee receive such an allowance under a salary sacrifice arrangement. As such the proposed payment does not appear to be a payment at all.

Based on the above, the proposed payment as described, would not be considered to be an allowance.

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

Yes, see question 1.

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

The employee is currently receiving a specified salary.

The employee's current employment contract does not indicate that the specified salary includes an amount for an allowance, and there is no mention in the employee's current employment contract of a provision for an allowance to compensate for additional expenses incurred by the employee because he is living away from home.

You have advised that it is not proposed to pay the employee an allowance on top of his salary. You have also advised that it is not proposed that the employee receive an allowance under a salary sacrifice arrangement.

As there is no plan to pay the employee an amount additional to his usual salary to compensate for additional expenses or to provide such an allowance under a restructured employment contract it is not reasonable to conclude that the allowance is in the nature of compensation for additional expenses.

Conclusion

The proposed payment by the employer to the employee is not considered to be a LAFHA pursuant to section 30 of the FBTAA because:

· The proposed payment is not considered to be an allowance.

· The payment is not considered to be in the nature of compensation for additional expenses.

Are you entitled to reduce the taxable value to nil?

Section 31 of the FBTAA operates to calculate the taxable value of a LAFHA benefit, allowing the amount of the LAFHA to be reduced by:

(i) any exempt accommodation component (as defined in subsection 136(1) of the FBTAA); and

(ii) any exempt food component (as defined in subsection 136(1) of the FBTAA)

However, as no LAFHA benefit has been provided, section 31 of the FBTAA does not apply.

Note: The amount of the accommodation component proposed to be paid would be an exempt component if it were considered to form part of a LAFHA.

The food component of a LAFHA will only be fully exempt from FBT where:

· the amount of the food component has been reduced by the estimated home food costs before being paid to the employee, and

· the amount of the reduction is the same or more than the statutory food component.

The statutory food component is $42 a week for each adult and $21 a week for each child.

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