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Ruling

Subject: Living away from home benefits

Question 1

Is the 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) for the duration of his secondment to Australia with the employer?

Yes

Question 2

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

Yes.

Question 3

If the answer to question 2 is yes, will the taxable value of the LAFHA be reduced to nil by the exempt food component pursuant to section 31 of the FBTAA?

Yes

Question 4

If the answer to question one is yes, whether the FBT exemption in relation to the employer paying the real estate agent directly for the accommodation costs associated with the employee being required to live away from their usual place of residence may apply pursuant to section 47(5) of the FBTAA?

Yes

This ruling applies for the following period

Year ending 31 March 2010

Year ending 31 March 2011

Year ending 31 March 2012

Year ending 31 March 2013

Year ending 31 March 2014

The scheme commenced on

1 July 2009

Relevant facts

The employee is from overseas and has been working with the parent company of the employer for many years in a variety of roles.

In XXXX the employee was seconded to another overseas country.

During their secondment it was always their intention to return to their usual place of residence in their country of origin. They maintained ties to the country of origin including family investment and financial ties.

In XXXX whilst preparing to return to their country of origin, he was offered and accepted a secondment with the employer in Australia for a particular number of years taking effect from XXXX.

It is the employee's and the employer's intention that they return to their usual place of residence in country of origin upon completion of their secondment in Australia.

The secondment agreement between the employee and the employer includes a clause to reflect the fixed period of the employer's secondment to Australia and their repatriation back to their home in country of origin.

The secondment agreement includes a clause whereby the employee agrees to provide a signed living away from home declaration to the employer at the end of each of FBT year.

The employee is being paid an allowance for food commencing in XXXX in line with the exempt food component determined in accordance with Taxation Determination TD 2009/6 and TD 2010/4 for FBT years commencing 1 April 2009 and 1 April 2010 based on the family size..

The employee has also been provided with the use of a property for the term of secondment to the employer. The employer is paying an amount per month for its rental. The amount is paid directly to the Real Estate Agent and the property is leased in the name of the employer.

The employee's family has returned to live in the family home in their country of origin. The employee's family and friends remain in the employee's country of origin. They include immediate family, parents and extended family. The employee remains in regular contact with them.

The employee's temporary resident subclass 457 visa was granted in XXXX with an expiration date of XXXX.

The employee returns to their country of origin several times a year to visit family and friends.

In response to the Commissioner's request for additional information, the following was provided:

· The employee intends to visit his country of origin 4 to 5 times a year, and will stay at his family home (now occupied by his wife and children) on these occasions.

· There is no intention at the present for the employee's family to relocate from the country of origin to Australia due to the employee's children's schooling there.

· It is the employee's intention to return to the family home in country of origin when the employee's temporary duties in Australia are complete.

· The employer will appoint another individual to take over the employee's role toward the end of the term of secondment in Australia.

· The employee is being paid a LAFHA for food.

· The allowance for food paid to the employee was set to cover additional food costs over the statutory food amount for an adult.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 30(1)

Fringe Benefits Tax Assessment Act 1986 Section 31

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Subsection 47(5)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

Question 1

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) of the FBTAA 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.

Taxation Ruling MT 2030 provides guidance on how the Commissioner determines whether an employee is living-away-from-home. 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 they are employed and the other at the location in the employee's country of origin where they resided with their family up until 200X and where their immediate family currently reside.

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 they are 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, that is, 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 their place of work, is necessitated by the requirement to be at their place of employment to perform their duties.

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

The employee maintains connection with their home in country of origin, not the least being that spouse and children continue to reside there.

The employee has stated the intention to return to live in their home in their country of origin on the expiry of their term of secondment in Australia in XXXX.

All the above factors lead us to the conclusion that the employee is living away from the former residence in their country of origin, that it is intended to return to their home in their country of origin at the conclusion of the employee's secondment in Australia in XXXX and that the employee is required to live away from their country of origin to perform the duties of employment.

However, the employee resided in another overseas country, with their family, from XXXX until moving to Australia in XXXX. The duration of a particular number of years from XXXX to XXXX (when the employee intends to return to their home in the country of origin) calls into question whether the employee's home in their country of origin could still be considered their usual place of residence.

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 is a foreign national, the term of the employee's employment is for a limited duration and he has the intention of returning to his old locality in his country of origin.

In line with the guidelines expressed in paragraphs 20 and 22 of MT 2030 the employee is considered to be living away from his usual place of residence. Accordingly the employee is considered to be required to live away from their usual place of residence to perform the duties of his employment.

Question 2

Is the allowance for food a LAFHA?

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 MT 2030 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 being paid in respect of the employee's employment?

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 provides guidance on the differences between an allowance and a reimbursement. It states:

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 payment will be an allowance for a food component to cover addition costs of food associated with being required to live away from the employee's usual place of residence and the amount will be paid in accordance with TD 2009/6 and TD 2010/4 for an adult. It is paid in respect of the employee's employment.

As the allowance is paid in respect of the employee's employment and it is a predetermined amount paid to cover estimated expenses, in this case the employee's food costs, this condition is satisfied.

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

We have established that the employee is considered to be required to live away from their 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 food expenses of the employee which is non-deductible expenditure.

Therefore this condition has been met.

As the above conditions have all been met, the allowance is considered to be a LAFHA pursuant to section 30 of the FBTAA.

Question 3

Are you entitled to reduce the taxable value of the LAFHA 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 )

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.

In the circumstances of this case, as,

· 100% of the amount of the LAFHA is for food; and

· The amount of the food component of the LAFHA has already been reduced by the amount of the statutory food component;

the amount of the LAFHA is reduced to nil pursuant to section 31 of the FBTAA.

Question 4

Is the payment for accommodation an exempt residual benefit?

Residual benefit

Section 45 of the FBTAA states that a benefit is a residual benefit if the benefit is not a benefit under Subdivisions 2 to 11 (inclusive) of Subdivision A of the FBTAA.

The benefit that arises in respect of the relevant accommodation provided to the employee is a residual benefit under section 45 of the FBTAA as the accommodation does not fall within any other category of benefits under Subdivision A of Divisions 2 to 11 of the FBTAA.

Exempt residual benefits

Subsection 47(5) of the FBTAA (living away from home accommodation benefits) exempts residual benefits in respect of accommodation provided to employees in certain circumstances. The requirements of subsection 47(5) of the FBTAA are:

(a) The residual benefit that arises in respect of accommodation is provided to an employee of the employer in respect of employment;

(b) The unit of accommodation is for the accommodation of eligible family members and is provided solely by reason that the employee is required to live away from the employee's usual place of residence in order to perform the employees employment duties;

(c) The accommodation is not provided while the employee is undertaking travel in the course of performing employment duties; and

(d) As relevant to this case, the employee gives the employer, before the declaration date, a declaration purporting to set out the employee's usual place of residence and the place at which the employee actually resided while living away from the usual place of residence. Under subsection 136(1) of the FBTAA the declaration date means the date of lodgement of the Fringe Benefits Tax (FBT) return for the year of tax, or such later date allowed by the Commissioner.

Applying the requirements of subsection 47(5) of the FBTAA to the accommodation benefit provided to the employee by the employer we find the following:

(a) Residual benefits for accommodation in respect of employees employment.

The employee has been provided with the use of a residential property for the term of secondment with the employer. The employer is paying the real estate agent directly for its rental and the accommodation is leased in the name of the employer.

The provision of the relevant accommodation to the employee is a residual benefit for accommodation provided in respect of the employee's employment. It is considered, therefore, that this requirement is met.

(b) Accommodation provided to eligible family member because employee required to live away from usual place of residence to perform employment-related duties

The definition of an eligible family member contained in subsection 136(1) of the FBTAA includes an employee.

We have established that the employee is required to live away from their usual place of residence to perform employment duties, (see question 1).

It is considered, therefore, that this requirement is met.

(c) Accommodation not provided during employees work travel

This requirement is met as the accommodation is not provided in relation to the employee undertaking travel in the course of performing employment duties.

(d) Declaration given, at required time and in approved form, to employer by employee setting out employees usual and actual places of residence.

The employment agreement includes a clause whereby the employee agrees to provide a signed living away from home declaration to the employer at the end of each FBT year.

This requirement is met.

As all requirements of subsection 47(5) of the FBTAA have been met the payment for accommodation is considered to be an exempt residual benefit.

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