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Edited version of private ruling
Authorisation Number: 1011719536647
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Subject: Living-away-from-home allowance
Question
Does the allowance that you receive from your employer in compensation for working conditions form part of your assessable income?
Answer
Yes
This ruling applies for the following periods:
1 July 2010 - 30 June 2011,
1 July 2011 - 30 June 2012, and
1 July 2012 - 30 June 2013.
The scheme commences on:
1 July 2010.
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.
You are an Australian resident for tax purposes.
You are employed on a mobile offshore drilling rig that is incorporated in a foreign country.
Your employer has no physical presence in Australia.
Your employer does not withhold PAYG from your salary.
Your employment requires you to work 28 days on and 28 days off on the drilling rig, on a fly-in, fly-out basis.
You are provided with residential accommodation aboard the drilling rig.
At the completion of each 28 day cycle, you return to your residence in Australia.
You have entered a Contract of Employment with your employer, which provides for the payment of a living-away-from-home allowance.
Relevant legislative provisions
Taxation Administration Act 1953 Schedule 1 section 12-35
Fringe Benefits Tax Assessment Act 1986 subsection 136(1)
Reasons for decision
Summary
Section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA) requires an entity to withhold an amount paid to an individual as an employee.
Where there is no obligation to withhold, amounts paid to the Australian employee by a non-resident entity for work performed overseas will not be salary or wages as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). As a consequence, the provisions of the FBTAA, in particular those relating to a living-away-from-home allowance fringe benefit, will not apply.
As the allowance is neither a fringe benefit nor an exempt benefit section 23L of the Income Tax Assessment Act 1936 (ITAA 1936) will not apply to the allowance.
The allowance will therefore be included in your assessable income.
Detailed reasoning
Section 12-35 of Schedule 1 to the TAA requires that a non-resident entity must withhold an amount paid to an Australian resident for work performed overseas, where the non-resident entity has a sufficient connection with Australia.
If there is a withholding obligation, then obligations under the FBTAA will arise in relation to benefits provided to an Australian resident employee in respect of the employment of an employee. However, if there is no withholding obligation, amounts paid to the employee by the non-resident entity for work performed overseas will not be 'salary or wages' as defined in subsection 136(1) of the FBTAA, and no obligations under the FBTAA can arise for the non-resident entity in relation to benefits provided to that employee.
In your case, you are employed overseas by a non-resident entity. You receive salary or wages as well as an allowance that is defined in your employment contract as a living-away-from-home allowance.
In order to determine weather the allowance is assessable to you, it is necessary to determine whether your employer is required to withhold PAYG from your salary.
Taxation Determination TD 2011/1 (TD 2011/1) discusses the circumstances in which a non-resident entity can be required to withhold amounts from salary or wages paid to an Australian resident employee for work performed overseas under section 12-35 of Schedule 1 to the TAA, and be subject to obligations under the FBTAA in relation to benefits provided to an Australian resident employee in relation to work performed overseas.
Paragraph 18 of TD 2011/1 considers the factors to be taken into consideration when determining whether a non-resident entity has a sufficient connection with Australia, it states:
In the case of a non-resident entity making a payment to an Australian resident for work performed overseas, there is a sufficient connection with Australia if the non-resident carries on an enterprise or income producing activities (or part of such enterprise or activities) in Australia and has a physical presence in Australia (collectively referred to as a physical business presence). As the obligation to withhold is on the non-resident entity, the sufficient connection must be with that entity. The residency of the employee is not a matter that establishes a sufficient connection of the non-resident entity with Australia. Conversely, the fact that the payment is made overseas does not establish that there is no sufficient connection with Australia.
In your case, your non-resident entity employer does not carry on an enterprise or income producing activity in Australia, and does not have a physical presence in Australia. Therefore, your employer does not have sufficient connection with Australia, and is not required to withhold PAYG from your salary under the TAA.
As your employer does not have sufficient connection with Australia for the purposes of the TAA, it therefore has no obligations under the FBTAA in relation to the allowance it pays to you.
As the allowance is neither a fringe benefit nor an exempt benefit, section 23L of the ITAA 1936 will not apply to the allowance.
The allowance will therefore be included in your assessable income.
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