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Ruling

Subject: Fringe benefits tax - living-away-from-home allowance benefit

Question 1

Is the living-away-from-home allowance paid to your employee a fringe benefit under section 30 of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes.

Question 2

Is the taxable value of the living-away-from-home allowance fringe benefit reduced to nil pursuant to paragraphs 31(a) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes.

This ruling applies for the following periods:

Year ended 31 March 2010

Year ended 31 March 2011

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

The scheme commences on:

1 April 2009

Relevant facts and circumstances

You employed your employee for a fixed term, which could be extended.

You did not employ your employee previously.

Your employee resided at location A with immediate family who are continuing to reside at that residence.

Your employee rents a residence at location B. Your employee works in location B during the week and returns to location A for the weekends every Friday evening for family and personal reasons.

Your employee expects to return to the residence at location A at the end of the current contract.

Your employee's remuneration package covers for allowances and benefits associated with temporarily moving away from the usual place of residence.

The allowance paid to your employee is as follows:

§ Rent - a rental apartment was identified by your employee at the time of negotiating the agreement. The cost of this apartment was used to determine the accommodation component of the allowance. Your employee continues to rent this apartment.

§ Living expenses - this amount was estimated to be your employee's additional costs of food due to living away from the normal place of residence.

Your employee has received the allowance since the commencement of employment.

Your employee has provided a living-away-from-home declaration to you indicating that location A is the usual place of residence, with the residence in location B being the place of residence whilst living away from the usual place of residence.

Reasons for decision

All references made in these reasons for decision are to the Fringe Benefits Tax Assessment Act 1986 unless otherwise stated.

Question 1

Summary

The allowance that you pay to your employee to cover accommodation and living expenses is a living-away-from-home allowance benefit (LAFHA) pursuant to section 30.

Detailed reasoning

The amounts that you pay to your employee to cover accommodation and living expenses will be a LAFHA pursuant to section 30 if:

§ the amount you are paying your employee is an allowance, and

§ it is reasonable to conclude that the allowance is in the nature of compensation to the employee for additional expenses your employee incurs because your employee is required to live away from the usual place of residence in order to perform the duties of employment.

Taxation Ruling TR 92/15 which in explaining the difference between an allowance and a reimbursement states at paragraph 2:

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.

You are currently paying your employee a set amount each fortnight to cover accommodation and living expenses. This is the character of an allowance.

This allowance is not set out as a separate entitlement in your employee's employment agreement. However the wording of the employment agreement is such that it allows for the components of your employee's remuneration package to be varied.

Your employee was living location A and is now required to live at location B in order to undertake the duties of the employment. When you were advised that your employee would not be relocating, you included the allowance in order to compensate for additional expenses incurred whilst living in location B. Therefore, it is reasonable to conclude that the allowance is in the nature of compensation to your employee for additional expenses incurred because your employee is required to live at location B.

What needs to be determined next is whether those additional expenses are a result of your employee being required to live away from the usual place of residence.

Place of residence of a person is defined in subsection 136(1) to mean:

(a) a place at which the person resides; or

(b) a place at which the person has sleeping accommodation…

It is considered that whether an employee is living away from his or her usual place of residence normally involves a choice between two places. Your employee has two places of residence, one in location A and one in location B.

The issue of what is meant by the term usual place of residence is addressed in paragraphs 11 to 25 of Miscellaneous Tax ruling MT 2030. Paragraph 14 states:

…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.

An employee's usual place of residence is determined by considering various factors and applying appropriate weightings to those factors. These factors include:

(a) The nature of the employee's employment and whether the move to another place was temporary or permanent move.

(b) The employee's place of residence (original place of residence) before obtaining another place of residence (the temporary residence).

(c) The employee's continuing connection/ties with the original place of residence, in particular:

(i) whether the employee maintained/retained the original place of residence during the period the employee resided at the temporary residence

(ii) whether or not the original place of residence was a place to which the employee could return at will

(iii) whether the employee's family continued to live in the original place of residence during the employee's temporary absence, and

(iv) the frequency of the employee's visits to the original place of residence.

(d) Whether the employee intends or expects to return to live at the original place of residence on cessation of work at the temporary locality.

(e) Any unique or special circumstances.

In paragraph 19 of MT 2030 it is concluded that an underlying theme of the various cases it describes in paragraphs 15 to 18 is the general presumption that the employee's usual place of residence will be close to where he or she is permanently employed.

Paragraph 19 of MT 2030 also goes on to say that an employee who changes his or her usual 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.

The following facts suggest that your employee's employment with you is of a permanent nature:

§ the initial employment agreement is fixed but is for five years which is considerable

§ as indicated by the employment agreement with you your employee may continue in the position for a longer period of time, and

§ you did not previously employ this person.

Usually the permanent nature of your employee's employment with you would suggest that the residence in location B is the usual place of residence.

However, the fact that the position is permanent may not be the only factor to consider. Your employee has very strong connections with the home in location A:

§ the employee's immediate family are still living at the residence in location A.

§ your employee returns to that home every weekend for personal reasons.

Your employee has also indicated that an intention to return to the residence in location A once the current contract has ended. This intention along with the fact that your employee has strong connections with the residence at location A give greater weight to the conclusion that your employee's usual place of residence is that residence.

Since it has been established that your employee has been required to move away from the usual place of residence in order to perform duties of employment, the allowance paid to compensate for additional expenses incurred because of living away from the usual place of residence will be a LAFHA under section 30.

Question 2

Summary

The taxable value of the LAFHA will be reduced to nil in accordance with paragraph 31(a) as the allowance is comprised wholly of the exempt accommodation component and exempt food component.

Detailed reasoning

The taxable value of the LAFHA that you provide will be calculated in accordance with paragraph 31(a):

Subject to this Part, the taxable value of a living-away-from-home allowance fringe benefit in relation to a year of tax is:

(a) if the fringe benefit is covered by subsection 30(1) - the amount of the recipients allowance reduced by:

(i) any exempt accommodation component; and

(ii) any exempt food component…

In order to reduce the taxable value of the LAFHA, it is necessary to determine if there is any exempt accommodation component of the allowance and any exempt food component of the allowance.

Exempt accommodation component is defined in subsection 136(1).

Your employee has provided you with a declaration form containing the information set out in subparagraphs (i) and (ii) of the definition in subsection 136(1). The part of the allowance that you are paying to compensate your employee for additional accommodation expenses at location B is based on the actual amount of rent being paid. Therefore that portion of the allowance is considered to be the exempt accommodation component.

Exempt food component is also defined in subsection 136(1) and requires that the employee provide the same declaration as required for the exempt accommodation component.

The exempt food component of a LAFHA is the amount of the allowance paid to compensate the employee for additional food costs because the employee is required to live away from the usual place of residence.

To calculate the exempt food component, you must first calculate the food component of the allowance. The food component is the amount of the allowance that is compensation for expenses the employee could reasonably be expected to incur on food and drink.

The food component of the allowance can be calculated as:

§ compensation for total food costs

§ compensation for increased food costs where the estimated home food costs equals or exceeds the statutory food amount, or

§ compensation for increased food costs where the estimated home food costs are less than the statutory amount.

There are no strict guidelines as to how the food component is calculated provided that the amount is reasonable.

The whole of the food component of the LAFHA that you are paying is the exempt food component on the following basis:

§ you have stated that you are paying your employee for additional food costs.

§ you have not indicated that your employee's home food costs are less than the statutory food costs (which is $42 per week for one adult).

§ the amount that you are paying to your employee for additional food costs is considered reasonable.

§ your employee has provided the appropriate declaration.

Since the amount of the LAFHA that you are paying to your employee is equal to the sum of the exempt accommodation component and the exempt food component, the taxable value of the LAFHA will be reduced to nil.

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