Edited version of private ruling

Authorisation Number: 1011719959626

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Ruling

Subject: Fringe Benefits Tax - living away from home allowance

Question 1

Is the employee 'required to live away from his usual place of employment in order to perform the duties of his employment' for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

(a)

Is the weekly allowance a living-away-from-home allowance under section 30 of the FBTAA?

Answer

Yes

(b)

If the allowance is a living-away-from-home allowance should the statutory food amount be pro-rated as the employee is living away from home for part of the week only?

Answer

Yes

Question 2

Is the use of the accommodation that you lease interstate an exempt benefit pursuant to section 47(5) of the FBTAA?

Answer

Yes

Question 3

Is the provision of flights to the employee to travel between their home state and interstate subject to fringe benefits tax?

Answer

Yes.

Question 4

Is the payment of airport long term parking fees subject to fringe benefits tax?

Answer

No

Question 5

Is the payment of taxi fares for travel between the employee's place of residence and the airport subject to fringe benefits tax?

Answer

Yes

Question 6

Is the payment of the expenses incurred by the employee in renting a hire car interstate subject to fringe benefits tax?

Answer

Yes

This ruling applies for the following period:

1 April 2010 - 31 March 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

From 1 July 2010 your employee has been employed in the position of Head of Finance in a unit of your company which is based interstate.

Immediately prior to accepting this position the employee was employed by your parent company in a senior finance role based in their home state. The employee worked in various roles based in their home state for several years.

Your interstate unit is undertaking a project for a major client who requires that all staff working on the project be employed by you. As a result a number of employees have transferred from your parent company to you.

If not for the client's requirement, your employee would have remained an employee of your parent company. The employee still retains all of his leave entitlements with your parent company.

As per the employee's employment agreement, the employee's role is a permanent position with no fixed end date. However, there is an understanding between you and the employee that the position is in the nature of a 2 year secondment.

The employee is a senior Finance leadership team member and has an ongoing role for the wider company group in relation to finance issues. The employee's activities during a week may include work for your parent company as well as yourself. The employee took the role with you with the intention that he would continue to be employed by your parent company in the longer term.

Under the employment agreement, the employee is required to work at your interstate site approximately 4 days a week.

Typically, the employee flies interstate each Monday morning and returns to his home state later in the week for the weekend. Normally he will have meetings in his home state on the Friday at your parent company's premises. These meetings are often in regard to the employee's wider role with your parent company as well as his current position with you.

In other weeks, he may travel to different places. A recent example of the employee's travel is a day trip to another state for meetings with the client.

The employee would normally occupy a home in his home state which is jointly owned by the employee and spouse.

Since the commencement of his new role, the employee's spouse and children have continued to live in their family home in their home state and have no plans to relocate interstate.

The employee maintains their postal address, registration on the electoral roll and the majority of personal possessions at the home state residence where the family reside.

The employee accepted the role on the understanding that although required to work interstate, the employee's family would continue to live and reside in their home state, with the employee travelling between the family home and interstate for part of the week. In fact, the employee made it a condition of employment prior to accepting the position that the employee would commute between the family home and interstate and that you would pay for the cost of travel, accommodation and meals.

Generally, the employee returns to the home state every weekend but on occasion the employee's family does travel interstate to spend time together. These family travel costs are personally paid for by the employee.

The employee did not live interstate prior to starting the new role and has no personal ties to this location. The employee would have continued to live at his family home on a full time basis if he had not accepted the new role with the company.

You book and pay for all flights between the home state and interstate location through your corporate travel arrangements.

The employee generally uses his private car to travel from the family residence to the airport and uses the long term parking facility. However, on occasions the employee will travel to the airport by taxi. The employee pays for these expenses using your parent company's corporate credit card.

While interstate the employee lives in accommodation that you lease. The employee also rents a hire car which is paid for using your parent company's corporate credit card.

You provided a copy of the employee's employment contract as a supporting document.

Schedule 1 details the employment location as being interstate (typically 4 days - 3 nights per week).

Schedule 2 contains additional clauses including the following:

Leave Balances

The Employee's current entitlement balances for Annual, Sick and Long Service leave will be transferred

Commute to other locations

The Employee's location of employment will be at an interstate location. As the employee resides in another state, it will be necessary for the Employee to commute to the interstate location on a weekly basis. The cost of travel and associated Fringe Benefits Tax (FBT) with the weekly commute will be borne by the Company.

Living Away From Home Allowance

For the period of contract the company will pay the Employee a living away from home allowance (LAFHA) of … per 5 day working week, paid monthly, comprised of a contribution toward accommodation and additional food costs, which are attributable to the fact that the Employee is living away from home.

…

Accommodation

The Company will arrange and pay for accommodation and any associated FBT for the Employee whilst in interstate for business purposes.

Car Hire

The Company will arrange and pay for car hire and associated FBT for the Employee whilst interstate for business purposes.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act (1986) subsection 136(1)

Fringe Benefits Tax Assessment Act (1986) section 20

Fringe Benefits Tax Assessment Act (1986) section 24

Fringe Benefits Tax Assessment Act (1986) section 30

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 47(7)

Fringe Benefits Tax Assessment Act (1986) section 52

Fringe Benefits Tax Assessment Act (1986) subsection 58G

Fringe Benefits Tax Assessment Act (1986) subsection 58Z(1)

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

This ruling concerns the taxation treatment of the following benefits which you are providing to an employee:

1. an allowance for food and accommodation;

2. accommodation provided to the employee while he is in the interstate location;

3. flights between the employee's home state and the interstate location;

4. the payment of the costs incurred in hiring a car at the interstate location;

5. the payment of parking fees incurred by the employee when he parks his car in the airport car park while he is interstate; and

6. the payment of taxi fares incurred in travelling from his residence in his home state to the airport.

1. Will the allowance be a living-away-from home allowance?

In general terms, most allowances are not subject to fringe benefits tax, but instead are taxed in accordance with the Income Tax Assessment Act. An exception to this general rule is a living-away-from-home allowance which is taxed in accordance with the provisions of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Section 30 of the FBTAA sets out the circumstances in which a payment to an employee will be a living-away-from-home allowance benefit.

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.

In summarising these requirements the allowance will be a living-away-from home-allowance if:

(a) 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 non deductible expenses incurred by the employee during a period; or

· additional non deductible expenses and other additional disadvantages to which the employee is subject during a period; and

(b) the additional expenses and other disadvantages arise because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment.

(a) Is the allowance paid for additional non deductible expenses incurred by the employee?

As set out in schedule 2 of the Employment Agreement the allowance is 'comprised of a contribution toward accommodation and additional food costs which are attributable to the fact that the employee is living away from home'.

In reviewing the employee's situation and the Employment Agreement it is accepted the employee will incur additional food costs whilst interstate. However, given the Employment Agreement provides that you will 'arrange and pay for accommodation and any associated FBT for the Employee whilst interstate for business purposes' the employee is unlikely to incur accommodation costs.

Although the allowance appears to only be partly for additional costs, the wording of paragraph 30(1)(b)(i) will be satisfied if the food costs are not deductible expenses as the paragraph states:

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;

Are the food costs 'deductible expenses'?

The term 'deductible expenses' is defined in subsection 136(1) to mean expenses incurred by the employee in respect of which a deduction is allowable to the employee under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

Guidance for determining whether the food expenses would be deductible expenses is provided by Taxation Determination TD 96/7 Fringe benefits tax: is fringe benefits tax (FBT) payable on meals and accommodation provided to employees who work at remote construction sites, where the accommodation is not the usual place of residence of the employee?

Paragraphs 3 and 4 of TD 96/7 state:

3. Where meals are provided, and it is concluded that the employee is travelling in the course of their employment, the taxable value of the benefit will be reduced to nil under the 'otherwise deductible' rule. The criteria for determining whether an employee is travelling in the course of performing their job are set out in paragraphs 35-43 of Taxation Ruling MT 2030. These criteria include:

• the nature of the duties performed;
• whether the employee is accompanied by dependants; and
• the length of time spent away from home.

As a practical general rule, where the question of whether or not the employee is travelling cannot easily be determined and the period away does not exceed 21 days, the employee may be accepted as travelling.

4. Guidance as to whether the 'otherwise deductible' rule will apply to reduce to nil the taxable value of meals provided to employees who are not travelling for work purposes is found in paragraph 5 of Taxation Ruling TD 93/230. Relevant factors to take into account include whether the employee:

• is required to live close by work;
• has a permanent residence away from the work site;
• lives away from home for a relatively short period of time; and
• has any choice as to the location of the accommodation provided.

Again, the 21 day period mentioned in paragraph 3 above will be accepted as a relatively short period of time for the purpose of these tests.

To illustrate these principles TD 96/7 provides the following two examples:

1. Allan works for a builder who has subcontracted work at a remote construction site in the Gulf Country. Allan stays at the site for 1 year but is flown home for two weeks every three months. Allan maintains a home in Townsville where his wife and family continue to live while he is away. All meals and accommodation at the site are provided by Allan's employer.

The taxable value of the accommodation is an exempt benefit under subsection 47(5). As the 'otherwise deductible' rule does not apply, the taxable value of each meal is $2.00.

2. Bill works for a builder who subcontracts only on remote construction sites throughout North Queensland. Bill and his family live in Cairns. While working on a three week contract at a construction site on Cape York Peninsula, Bill's employer, in accordance with his usual practice, flies Bill home on the two intervening weekends. All meals and accommodation at the site are provided by Bill's employer.

The taxable values of the meals and accommodation are reduced to nil under the applicable 'otherwise deductible' rules, as Bill would be accepted as travelling in the course of his employment.

Is the employee travelling?

As discussed in paragraph 3 of TD 96/7, the food costs incurred by the employee will be deductible expenses if the employee is travelling. Guidance for determining whether the employee is travelling in the course of his employment is provided by paragraphs 35 to 43 of MT 2030 Fringe benefits tax: Living-away-from-home allowance benefits. The paragraphs discuss three criteria which indicate the employee is travelling.

The first criterion which is the nature of the duties performed is discussed in paragraphs 37 and 38 of MT 2030 which state:

37. Unlike living-away-from-home allowances, there is generally no change of employment location in relation to the payment of travelling allowances. While the expenses that they are intended to compensate for may be similar - meals and accommodation, etc., - the circumstances in which the allowances are paid are essentially different.

38. A living-away-from-home allowance is paid where the employee has moved and taken up temporary residence away from his or her usual place of residence so as to be able to carry out employment duties for a time at the new (but temporary) workplace. A travelling allowance, on the other hand, is paid because the employee is travelling in the course of performing his or her job. In the former case, there is a change of job location and an actual change of residence to a place at or near that location. In the latter, the employee does not change job locations but simply travels in order to carry out the requirements of the job.

In applying these paragraphs to your employee's situation, the employee is generally not required to travel in the course of performing his employment duties. The position does not involve regular changes in the place at which the employment duties are performed. The employment location for the two year period is interstate. This does not indicate the employee is travelling.

The second criterion is the length of time away from home which is discussed in paragraphs 39 and 40 of MT 2030 which state:

39. Travelling allowances are often paid for comparatively short periods, exceptions being allowances paid where the employment is inherently itinerant in nature or where travelling is a regular incident of the occupation, e.g., commercial travellers, travelling entertainers, etc. Academics studying on sabbatical leave have also been held to be travelling in the course of their employment rather than living away from home and thus could receive a travelling allowance over an extended period of time.

40. The nature of an allowance is not to be determined by reference solely to the period for which it is paid. As mentioned, a travelling allowance might be paid to a commercial traveller almost continuously throughout the year whereas another employee may receive a living-away-from-home allowance only for a month or so.

Although paragraph 40 states the nature of the allowance is not to be determined solely by reference to the period for which it is paid, it is relevant to note that it is anticipated that the allowance will be paid for a two year period. This can not be considered to be a comparatively short period of time.

The third criterion discussed in paragraphs 42 and 43 of MT 2030 is whether the employee is accompanied by dependants. Paragraphs 42 and 43 of MT 2030 state:

42. An employee travelling in the course of employment ordinarily would not be accompanied by his or her spouse and family. On the other hand, it is more common for the spouse and children of an employee who has temporarily changed job locations and is living away from the usual place of residence to have his or her family living at the new location.

43. That is not to say that an unaccompanied employee should always be treated as travelling and an accompanied one regarded as living away from home. While those factors might be indicative of the nature of the employee's absence, the tests for determining the purpose of an allowance are as previously explained. To illustrate the point, an employee who lives during the working week in the country town where his permanent job is located but who travels perhaps several hundred kilometres to live during weekends with his wife and children in the family home located in another town would be, during the week, living away from home. So, too, would a married public servant based in a capital city who is seconded for six months to carry out a special task interstate in circumstances where his family stays behind in the family home. It is not where the family is that determines the nature of the allowance but where the employee is in relation to the usual place of residence and whether, on the facts, the employee can be said to be travelling on the job or living away from home.

Although paragraph 42 states that an employee who is travelling will generally not be accompanied by his or her spouse and family, paragraph 43 makes clear that this factor by itself is not sufficient to conclude the employee is travelling.

Therefore, in applying the three criteria it cannot be concluded that the employee is travelling in the course of their employment duties. This conclusion is consistent with example 1 of TD 96/7 and the examples provided in paragraph 43 of MT 2030.

Does paragraph 4 of TD 96/7 apply?

As set out in paragraph 4 expenses incurred by an employee who is not travelling can be deductible where the factors identified in paragraph 5 of Taxation Determination TD 93/230 Income tax and fringe benefits tax: is a camping allowance assessable under section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) or under Division 6 of the Income Tax Assessment Act 1997 (ITAA)? apply.

The factors set out in paragraph 5 of TD 93/230 are the factors taken into account by Hill J in Roads and Traffic Authority of New South Wales v Federal Commissioner of Taxation (1993) 26 ATR 76; (1993) 116 ALR 482; (1993) 43 FCR 223; 93 ATC 4508 (RTA case). In concluding that a camping allowance was not a living-away-from-home allowance, Hill J. took the following factors into account:

(a) the employee was required by the employer, as an incident of their employment, to live close by their work;

(b) the employee was only living away from home for relatively short periods of time;

(c) the employee did not choose to live at the places where the camp sites were located; and

(d) the employee had a permanent home elsewhere.

In so doing, Hill distinguished the facts from those that had existed in the Federal Court decision in Federal Commissioner of Taxation v. Toms (1989) 20 ATR 466; 89 ATC 4373 (Toms Case). The taxpayer in that case was a self employed forest worker. During his working week he lived in a bush camp approximately 108 kilometres from his family home. In concluding that the taxpayer was not entitled to a deduction for the costs of travelling between home and the caravan Burchett J said at ATC 4376:

the caravan was rendered necessary as much by the taxpayer's choice of the place of his residence in Grafton as by his choice of employment in the State forest, and its purpose was to enable him to retain his residence at Grafton although employed in the State forest. Had he lived at a town closer to the forest, there is no question the caravan would have been unnecessary.

In reaching this conclusion, Burchett J applied the decision in F.C. of T. v. Charlton 84 ATC 4415 (Charlton's case). The taxpayer in that case was a pathologist whose home was in the Melbourne suburb of Fitzroy. During the relevant period he performed a number of autopsies at Bendigo for which he was paid fees and, in order to avoid the fatigue of the travel which would otherwise have been involved, he retained a flat at Bendigo which was available to him. He wrote up the drafts of his autopsy reports at the flat, where he also kept medical texts. Crockett J. at 4419 - 4421 said:

The Commissioner contends (correctly in my view) that, if the taxpayer should choose to reside so far from the place where it is necessary for him to be in order to gain his income that he not only needs to incur expense in travelling to that place but also to incur expense in the provision to him of some accommodation transitory or discontinuous in its use and secondary to or temporarily supplemental of his actual home, then that expense, too, is for the same reason non-deductible.

…

The taxpayer's election to live in Melbourne and not in Bendigo meant that the rental expended on the flat in order to enable him to secure accommodation in which to recuperate from the rigours of travel and the nature of his work was an expenditure dictated not by his work but by private considerations. There was an exception to this in the month of May. He was then required by his employment to work in both Wangaratta and Bendigo. The nature and circumstances of that work made the taking of rest at Bendigo necessary. The keeping of a flat during that month was dictated by his income-producing activity and was incidental to his work.

In applying these decisions, the situation of your employee is comparable to the taxpayers in Toms and Charlton. The employee's place of employment as shown in schedules 1 and 2 of the Employment Agreement is located interstate. The decision to retain the family residence was made by the employee. There was no requirement for the employee to continue to reside in their home state. Therefore, the situation described in paragraph 4 of TD 96/7 does not apply.

As the employee is not travelling and the employee's situation does not come within paragraph 4 of TD 96/7 the food expenses incurred by the employee while interstate are not considered to be deductible expenses.

(b) Do the additional expenses arise because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment?

The FBTAA does not define 'usual place of residence'. However, in subsection 136(1) it does define a 'place of residence' to mean:

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

(c) 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 the absence of a legislative reference it is relevant to refer to the ordinary meaning of 'usual'. The Macquarie Dictionary defines 'usual' to mean:

1. habitual or customary: his usual skill.
2. such as is commonly met with or observed in experience; ordinary: the usual January weather.
3. in common use; common: say the usual things.

noun

4. that which is usual or habitual.

phrase

5. as usual, as is (or was) usual; in the customary or ordinary manner: he will come as usual.

Guidelines for determining an employee's usual place of residence are provided by Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits.

Paragraphs 15 to 18 refer to various decision of Taxation Boards of Review relating to the former 51A of the Income Tax Assessment Act 1936 (ITAA 1936). In referring to these decisions paragraph 14 of MT 2030 states:

As the decisions illustrate, 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.

Further discussion occurs at paragraphs 19 to 25. Paragraph 20 provides the following general rule:

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. For example, a construction worker having to travel to a construction site to live and work would be in this category unless he had abandoned the former place of residence upon moving to the locality of the site. A case of the latter situation would be where the employee decided to permanently leave the former home, e.g., if a resident of Sydney, on obtaining a job for two years on a construction site in a remote part of Western Australia, decided to "sell up" in Sydney and move permanently to Western Australia to live.

These principles and the various cases that have considered usual place of abode or usual place of residence were discussed by the Administrative Appeals Tribunal in Compass Group (Vic) Pty Ltd (as trustee for White Roche & Associates Hybrid Trust) v FC of T [2008] AATA 845; 2008 ATC 10-051. At paragraphs 55 and 56 Deputy President S A Forgie said:

55. There are several principles that can be gleaned from these cases. The first is that the fact that s 30 and, before it, s 51A, are concerned with what is described as a living-away-from-home allowance. That allowance is paid by an employer to an employee in respect of the employee's employment. It is a payment in the nature of compensation. The compensation is to meet additional expenses the employee incurs during a particular period and for other additional disadvantages he or she faces in that period but only if the expenses are incurred because he or she is required to live away from his or her usual place of residence in order to perform the duties of employment. As Mr Cotes alluded to in CaseB47, it necessarily assumes that the taxpayer has two places that could be described as his or her place of residence before one or the other needs to be identified as the "usual place of residence".

56. Putting to one side the case of Case 50, all cases looked to the taxpayer's place of residence before he or she acquired another place of residence. Each looked to the taxpayer's continuing connection with the first place of residence including matters such as whether his or her family continued to live there, the frequency of the taxpayer's visits there and whether or not that was a place to which the taxpayer could return at will if he or she so wished. Also relevant was the nature of the employment and whether the move to another place was a temporary or permanent move.

In considering the factors referred to by the AAT the following factors indicate the employee's usual place of residence is in their home state:

· the employee's spouse and children will continue to live in the family residence;

· the employee maintains his postal address, registration on the electoral roll and the majority of personal possessions at the family residence;

· the employee returns to the family residence each weekend;

· the understanding that the position is in the nature of a two year secondment; and

· the stated intention to return to the home state at the end of the secondment.

Therefore, the employee is considered to be currently living away from his usual place of residence. Further, as the usual place of residence is the family residence and the place of employment is interstate it is accepted that the employee is required to live away from his usual place of employment in order to perform their duties of employment.

As both requirements are satisfied, the allowance will be a living-away-from-home allowance.

The calculation of the taxable value of the living-away-from-home allowance

The method for calculating the taxable value of the living-away-from-home allowance fringe benefit is set out in section 31 of the FBTAA.

Section 31 states:

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; or

(b) if the fringe benefit is covered by subsection 30(2) - the amount of the recipients allowance.

'Exempt food component' is defined to mean:

(a) where the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out particulars of:

(i) the employee's usual place of residence during the recipients allowance period; and

(ii) the place at which the employee actually resided during the recipients allowance period;

whichever of the following is applicable:

(iii) where the food component of the recipients allowance has been determined by allowing for the whole or a part of the amount (which whole or part is in this definition referred to as the "deducted home consumption expenditure") of the expenditure that might reasonably be expected to have been incurred by the employee, in respect of the recipients allowance period, in respect of food or drink for eligible family members if the eligible family members had resided at their usual place of residence during the recipients allowance period:

(A) if the deducted home consumption expenditure is not less than the sum of the statutory food amounts in respect of eligible family members in respect of the recipients allowance period - the food component of the recipients allowance; or

(B) in any other case - the amount ascertained in accordance with the formula:

A - (B - C)

where:

A is the food component of the recipients allowance;

B is the sum of the statutory food amounts in respect of eligible family members in respect of the recipients allowance period; and

C is the deducted home consumption expenditure;

(iv) where subparagraph (iii) does not apply - the food component of the recipients allowance reduced by the sum of the statutory food amounts in respect of eligible family members in respect of the recipients allowance period; or

(b) in any other case - nil.

In your application you asked whether the statutory food amount should be pro-rated to take into account the fact that the employee is only living away from home for part of the week.

The answer to this question is contained within the Minutes of the May 2009 meeting of the FBT subcommittee of the National Taxation Liaison Group. The question asked by the Taxation Institute of Australia and the response provided by the Tax Office was as follows:

8. Employees live away from home part of each week (TIA)

The Taxation Institute of Australia seeks clarification as to what is the reasonable food amount for an Australian resident who is living away from home for part of a week only in similar circumstances to those described in paragraph 43 of Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits. That is, an employee lives during the working week in a location near his/her permanent job but travels several hundred kilometres to his/her usual place of residence to live with his/her family on weekends.

Each year the Commissioner advises by way of a taxation determination what amount represents the reasonable food component of a living-away-from-home allowance (LAFHA) for expatriates during a term of employment in Australia. Notwithstanding that the amount is expressly for expatriates, the Tax Office stated in the NTLG FBT Sub-committee meeting of 22 May 2003 that these amounts can apply to Australian residents where 'the employer considers that the amounts are reasonable in relation to the particular employee's circumstances and having regard to the statements contained in MT 2040'.

If it is the case that an employer would consider that an amount in the taxation determinations is reasonable for an employee who is living away from home for the full week, what if the same employee is living away from home for only part of the week (for example Sunday night to Friday night) and living at his/her usual place of residence for the remainder of the week? Is the full amount published in the taxation determinations still considered reasonable or is the reasonable amount a lesser amount (such as a pro-rated amount based on the proportion of nights the employee is living away from home in the week)?

In addition to the above, for the purposes of determining the 'exempt food component' under section 31 of the FBTAA how is the statutory food amount determined? Is it based on the full amount specified in section 136(1) of the FBTAA or some lesser amount (such as a pro-rata of the full amount based on the proportion of nights the employee is living away from home in the week)?

Taxation Institute view

In the circumstances described above, the reasonable food amount, being expressed by the Tax Office as a weekly amount, should be reduced to a proportional amount equivalent to the number of days in the week that the employee is living away from home. For example, if the employee is living away from home for five days of the week, the reasonable food amount would be equivalent to five-sevenths of the reasonable food amount published in the taxation determination.

In relation to the statutory food amount, as this amount is also specified (in legislation) as a weekly amount, it should similarly be reduced to a proportional amount, in the same way as outlined above, in order for it to match to the period of time for which the LAFHA is provided.

Tax Office response

The Tax Office agreed with the view expressed by the TIA in the submission. It would be not only reasonable but also correct to reduce the reasonable food amount and statutory food amount to a proportional amount equivalent to the number of days in the week that the employee is living away from home.

2. Will the accommodation provided to the employee in Melbourne be an exempt benefit pursuant to section 47(5) of the FBTAA?

The provision of accommodation to an employee may be either a housing benefit or a residual benefit depending upon whether the accommodation is the employee's usual place of residence.

Where the accommodation is not the employee's usual place of residence the benefit will be a residual benefit. As the interstate accommodation is not the employee's usual place of residence the provision of accommodation will be a residual benefit.

However, this will be an exempt benefit where the requirements of subsection 47(5) of the FBTAA are satisfied. Subsection 47(5) states:

Where:

(a) a residual benefit consisting of the subsistence, during a year of tax, of a lease or licence in respect of a unit of accommodation is provided to an employee of an employer in respect of his or her 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 his or her usual place of residence in order to perform the duties of that employment;

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

(d) either of the following conditions is satisfied:

(i) subsection (7) applies in relation to the provision of transport for the employee in connection with travel in the period in the year of tax when the lease or licence subsisted, being travel between the employee's usual place of residence and the employee's usual place of employment;

(ii) the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out:

(A) the employee's usual place of residence; and

(B) the place at which the employee actually resided while living away from his or her usual place of residence;

the benefit is an exempt benefit in relation to the year of tax.

In considering these requirements:

· paragraph (a) is satisfied as the benefit is a residual benefit consisting of the subsistence of a lease or licence in respect of a unit of accommodation;

· paragraph (b) is satisfied as the unit of accommodation is provided solely 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 employment; and

· paragraph (c) is satisfied as the employee is not undertaking travel in the course of performing the duties of employment.

Therefore, the provision of the accommodation interstate will be an exempt benefit under subsection 47(5) of the FBTAA if the employee provides you with a declaration that satisfies the requirements of paragraph 47(5)(d) of the FBTAA.

3. Will a fringe benefits tax liability arise from the flights provided to the employee?

You provide the employee with flights between their home state and the state in which the workplace is located. The provision of these flights will be a residual benefit. In determining whether a fringe benefits tax liability will arise from the provision of this benefit it is necessary to consider:

(a) whether the benefit is an exempt benefit; and

(b) whether the employee would have been able to claim an income tax deduction for the cost of the airfares.

(a) will the provision of flights be an exempt benefit?

For the purpose of this ruling the relevant exemption to consider is that contained within subsection 47(7) of the FBTAA.

Subsection 47(7) states:

where during a period of employment with an employer:

(a) an employee's usual place of employment is:

(i) on an oil rig, or other installation, at sea; or

(ii) at a location in a State or internal Territory but not in, or adjacent to, an eligible urban area;

(b) the employee is provided with residential accommodation, at or near that usual place of employment, by:

(i) the employer;

(ii) an associate of the employer; or

(iii) a person (in this subparagraph referred to as the "arranger") other than the employer or an associate of the employer under an arrangement between:

(A) the employer or an associate of the employer; and

(B) the arranger or another person;

(c) the employee, on a regular basis:

(i) works for a number of days and has a number of days off; and

(ii) on completion of the working days, travels from that usual place of employment to his or her usual place of residence and, on completion of the days off, returns from his or her usual place of residence to that usual place of employment; and

(d) the employee is provided with transport on a regular basis in connection with the travel referred to in subparagraph (c)(ii) and that transport is provided by:

(i) the employer;

(ii) an associate of the employer; or

(iii) a person (in this subparagraph referred to as the "arranger") other than the employer or an associate of the employer under an arrangement between:

(A) the employer or an associate of the employer; and

(B) the arranger or another person;

and, having regard to the location of that usual place of employment and the location of the employee's usual place of residence, it would be unreasonable to expect the employee to travel between those places on work days on a daily basis, the residual benefit constituted by the provision of the transport referred to in paragraph (d) is an exempt benefit.

Although paragraphs (b), (c) and (d) are satisfied as the employee is provided with accommodation near the usual place of employment and transport on a regular basis between the usual place of employment and the usual place of residence the exemption in subsection 47(7) will not apply as the employee's usual place of employment is not on an oil rig, or other installation at sea, or in a remote area.

Therefore, the requirement in paragraph 47(7)(a) is not satisfied.

(b) Would the employee have been able to claim an income tax deduction for the cost of the flights?

In calculating the taxable value of a residual fringe benefit section 52 of the FBTAA enables the taxable value of a residual fringe benefit to be reduced by the amount that an employee would have been entitled to claim as an income tax deduction if the employer had not provided the benefit.

Generally, the expenses of travel between work and home are not deductible (Lunney & Haley v. FC of T (1958) 100 CLR 478; (1958) 11 ATD 404 (Lunney's Case)). The general rule, as discussed in Taxation Ruling IT 2199 Income Tax: Allowable deductions: travelling expense(s) between places of employment and/or place(s) of business, is that travel between home and a person's regular place of employment or business is ordinarily private travel.

The application of this general rule was considered by the Full High Court in Federal Commissioner of Taxation v Payne [2001] HCA 3; 46 ATR 228; 2001 ATC 4027 (Payne). Gleeson CJ, Kirby J and Hayne J at ATC 4030 said:

That is, the majority in Lunney held that a taxpayer does not demonstrate that the first limb of s 51(1) is satisfied by demonstrating only that there is some causal connection between the expenditure and derivation of the income. What must be shown is a closer and more immediate connection. The expenditure must be incurred ``in the course of'' gaining or producing the assessable income.

Application of authority

14. When, as here, the travel is between two places of unrelated income derivation, the expense cannot be said to be incurred ``in the course of'' deriving income from either activity. As the majority of the Full Court recognised in this case:^[25]

``... The expenditure was incurred before [the taxpayer] began to perform his duties as a pilot, or after he had fulfilled those duties. Similarly, in relation to the deer farming business.''

The expenditure was, as the majority of the Full Court rightly said, ``not incurred in the course of his employment as a pilot, nor in the course of his deer farming business''.^[26] The taxpayer's travel occurred in the intervals between the two income-producing activities. The travel did not occur while the taxpayer was engaged in either activity. To adopt and adapt the language used in Ronpibon, neither the taxpayer's employment as a pilot nor the conduct of his business farming deer occasioned the outgoings for travel expenses.

These outgoings were occasioned by the need to be in a position where the taxpayer could set about the tasks by which assessable income would be derived. In this respect they were no different from expenses incurred in travelling from home to work.

15. This is not to deny that s 51 recognises that there may be cases where only part of an outgoing can be said to have been incurred in (that is, in the course of) gaining or producing the assessable income. This, however, is not such a case. The conclusion that the travel occurred in the intervals between the two income-producing activities, when the taxpayer was not engaged in either of them, denies the requisite connection between any part of the outgoing and the gaining or producing of assessable income.

16. The reference by Dixon CJ in Lunney to his misgivings ``if the matter were to be worked out all over again''^[27] was taken, in the argument of the present matter, as suggesting that the rule established in that case could not be supported logically. We do not accept that this is so, and it is not what we understand Dixon CJ to have said. As Dixon CJ pointed out, the question in Lunney was how an undisputed principle was to be applied. The principle which had to be applied in that case, and must be applied in this, is one which limits the allowance of a deduction for outgoings to those outgoings that are incurred in the course of deriving assessable income. It is a principle which excludes outgoings which, although incurred for the purpose of deriving assessable income, are not incurred in the course of doing so.

In applying this decision, there needs to be more than a causal connection between the expenditure and derivation of income. The expenditure must be incurred in the course of gaining or producing assessable income. In other words, the question to be considered is whether the travel is on work, or to work.

In considering this question the flights between the home state and the state where the workplace is located can be distinguished from the flights between the state where the workplace is located and another state where a meeting is being held. In the first instance the flights are travelling either to, or from work. They are undertaken to enable the employee to either travel from the usual place of residence in their home state to the state where the place of employment is located, or to return to the usual place of residence. Therefore, they involve travel to work. By contrast the travel between the place of employment and to another state to carry out employment duties is travel in course of undertaking work.

This conclusion is consistent with the decisions in Toms and Charlton as the expenses incurred in commuting between the home state and the state where the place of employment is located arise from the employee's decision to maintain the usual place of residence in their home state. This choice was dictated not by the work, but by private considerations.

Therefore, as the employee would not be able to claim an income tax deduction for the cost of the flights between their home state to the state where the place of employment is located a fringe benefits tax liability will arise from the provision of the flights.

In support of this conclusion, it is noted that if the flight costs were deductible there would not be a need for the exemption provided by subsection 47(7). Parliament in enacting subsection 47(7) has limited the circumstances in which a fringe benefit will arise from travel undertaken between the employee's usual place of employment and usual place of residence.

As discussed above, the exemption is currently limited to situations where the employee's usual place of employment is on an oil rig or other installation at sea, or in a remote area. Although the Assistant Treasurer in a Media Release of 18 November 2010 announced that the Government will introduce legislation to extend the exemption to Australian residents working in remote overseas areas who are employed under 'fly-in/fly-out' arrangements there is no indication that it will be extended to include travel for employees working in a capital city who live in another State.

It should also be noted that the Minutes of the meeting of the FBT subcommittee of the National Tax Liaison Group held on 18 November 2004 record that the accounting bodies in a joint submission to Government in August 2004 requested a legislative solution to the liability that arises in relation to travel costs for employees working in one city and living in another. To date, the Government has not announced an intention to amend the legislation to cover this situation.

4. Will a fringe benefits tax liability arise from the payment of the airport parking fees?

When travelling to the state where the place of employment is located the employee will generally drive their private car from the family residence to the airport where it is parked in the long term parking facility while the employee is interstate. To pay for the parking the employee uses a corporate credit card of your parent company.

In using the corporate credit card to pay for an obligation incurred by the employee the employee is receiving an expense payment benefit under paragraph 20(a) of the FBTAA. As the benefit is being provided by an associate of the employer it may be a fringe benefit if it is not an exempt benefit.

In considering whether the payment of the parking fees is an exempt benefit the relevant section to consider is section 58G.

Paragraph 58G(1)(a) provides that an expense payment benefit will be an exempt benefit where:

(i) the expenditure is in respect of the provision of motor vehicle parking facilities; and

(ii) the benefit is not an eligible car parking expense payment benefit.

In considering these two conditions, the first condition is satisfied as the expenditure is in respect of the provision of motor vehicle parking facilities.

In considering the second condition, 'eligible car parking expense payment benefit' is defined in subsection 136(1) of the FBTAA to mean an expense payment benefit where:

(a) the recipient is an employee or an associate of an employee; and

(b) the recipients expenditure is in respect of the provision of car parking facilities for a car on one or more days; and

(c) the following conditions are satisfied in relation to any of those days:

(i) on that day, the employee has a primary place of employment;

(ii) on that day, the car was parked for one or more daylight periods exceeding 4 hours in total at, or in the vicinity of, that primary place of employment;

(iii) the whole or a part of the recipients expenditure is in respect of the provision of the parking facilities to which that parking relates;

(iv) on that day, the car was used in connection with travel by the employee between the place of residence of the employee and that primary place of employment;

(v) the provision of parking facilities for the car during the period or periods is not taken, under the regulations, to be excluded from this definition;

(vi) the day is on or after 1 July 1993.

In considering these requirements, 'primary place of employment' is defined in subsection 136(1) to mean:

business premises, or associated premises, of the employer of the employee, or of an associate of the employer, where:

(a) if the employee performed duties of his or her employment on that day - on that day; or

(b) in any other case - on the most recent day before that day on which the employee performed duties of his or her employment;

those premises are or were:

(c) the sole or primary place of employment of the employee; or

(d) otherwise the sole or primary place from which or at which the employee performs duties of his or her employment.

Generally, this will be your premises interstate. As these premises cannot be considered to be in the vicinity of the employee's home state airport long term parking station, subparagraph (c)(ii) is not satisfied. Further, on the days on which the employee does not travel between the usual place of residence and the primary place of employment subparagraph (c)(iv) will not be satisfied.

As these subparagraphs are not satisfied, the benefit will not be an 'eligible car parking expense payment benefit'.

Therefore, as the expense payment benefit is in respect of the provision of motor vehicle parking facilities and is not an 'eligible car parking expense payment benefit' it will be an exempt benefit under paragraph 58G(1)(a) of the FBTAA.

5. Will a fringe benefits tax liability arise from the payment of the taxi fares?

On occasions when travelling interstate the employee will travel to the airport from their residence in a taxi. To pay for the taxi fare the employee uses a corporate credit card of your parent company.

In using the corporate credit card to pay for an obligation incurred by the employee the employee is receiving an expense payment benefit under paragraph 20(a) of the FBTAA. As the benefit is being provided by an associate of the employer it may be a fringe benefit if it is not an exempt benefit.

Will the payment of the taxi fare be an exempt benefit?

In considering whether the payment of the taxi fare is an exempt benefit the relevant section to consider is section 58Z.

Under section 58Z a benefit that arises from taxi travel by an employee will be an exempt benefit if:

· the travel is a single trip beginning or ending at the employee's place of work; or

· the travel is the result of sickness or injury to the employee and the whole or part of the journey is directly between the employee's place of work, the employee's residence or any other place that it is necessary, or appropriate for the employee to go as a result of the sickness or injury.

As neither of these conditions apply, the expense payment benefit will not be an exempt benefit under section 58Z.

Would the employee have been able to claim an income tax deduction for the taxi fare?

Alternatively, the taxable value of an expense payment fringe benefit may be reduced in accordance with the 'otherwise deductible rule' pursuant to section 24 of the FBTAA. This rule allows the taxable value of the fringe benefit to be reduced by the amount that an employee would have been entitled to claim as an income tax deduction if the employer had not paid the expense.

In applying the principles discussed above in relation to the flights, the otherwise deductible rule will not apply to the taxi fares as the cost does not arise from the employment duties of the employee. Rather, it arises from the employee's decision to return to their family each weekend.

6. Will a fringe benefits tax liability arise from the payment of the hire car expenses?

While interstate the employee rents a hire car which is paid for using a corporate credit card of your parent company.

As discussed above, the taxable value of an expense payment fringe benefit may be reduced in accordance with the 'otherwise deductible rule' pursuant to section 24 of the FBTAA. This rule allows the taxable value of the fringe benefit to be reduced by the amount that an employee would have been entitled to claim as an income tax deduction if the employer had not paid the expense.

The application of the otherwise deductible rule will depend upon how the employee uses the car. If it is used for a work related purpose the otherwise deductible rule may apply if the necessary documentation is provided by the employee.

In your application you advised the travel undertaken in the car will include travel between:

· the airport and the rental accommodation; and

· the rental accommodation and the place of employment.

In applying the principles discussed above in relation to the flights the cost of these journeys is unlikely to be deductible as the employee has not commenced his work duties at the time the journeys are undertaken. In such a situation, the otherwise deductible rule will not reduce the taxable value of the benefit.

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