Edited version of private ruling

Authorisation Number: 1011746464696

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Ruling

Subject: Living away from home allowance

Question 1

Will the allowance that you receive from your employer form part of your assessable income?

Answer: Yes

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commences on:

March 2011

Relevant facts and circumstances

You are a citizen of a country A and have there all your life.

Prior to arriving in Australia to commence employment you were living with family, rent free.

You arrived in Australia in 2010 having received an offer from an Australian based employer.

You were on a sponsored 457 visa which is due to expire in 2014.

Your intention is to return to country A at the end of your visa. All of your family live there and you have no ties in Australia.

The majority of your possessions remain in storage at your family's residence in country A.

You continue to hold and maintain bank accounts and credit cards in country A. You have funds/investments there that you will not be liquidating.

You received a living-away-from-home allowance from your original employer from the commencement of your employment in 2010. This consisted of rent allowance and food allowance.

In late 2010, you moved to another firm and your visa was transferred to the new company.

Your new employer is willing to pay a living-away-from-home allowance.

The amount of the proposed allowance is for rent and for food.

Your employer has determined the rent component based on your current rental payments, and the food component based on the amount you are eligible to claim.

Your current salary is $X plus superannuation before taxation.

There will be no changes to your current employment contract which states that your salary is $X.

According to your contract you are entitled to be reimbursed by your employer for some business expenses that you incur in the performance of your duties.

You will supply a living-away-from-home allowance declaration to your employer.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-1(1),

Income Tax Assessment Act 1997 Section 6-15,

Income Tax Assessment Act 1997 Section 6-23,

Income Tax Assessment Act 1936 Section 23L,

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1) and

Fringe Benefits Tax Assessment Act 1986 Section 30.

Reasons for decision

Question 1

Summary

It cannot be concluded that the proposed allowance that will be paid to you is in the nature of compensation for the additional non-deductible expenses that you will incur. Therefore the allowance will not be a living-away-from-home allowance benefit (LAFHA) and will form part of your assessable income.

Detailed reasoning

Your assessable income for an income year consists of ordinary income and statutory income in terms of subsection 6-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). The salary that you receive from your employer forms part of your assessable income.

Section 6-15 of the ITAA 1997 outlines the amounts that will not form part of your assessable income. Within this section, subsection 6-15(3) provides that an amount that is 'non-assessable non-exempt income' will not be assessable income.

Section 6-23 of the ITAA 1997 provides that an amount of ordinary income or statutory income will be 'non-assessable non-exempt income' if a provision of the Act states that it is not assessable income and is not exempt income.

In the context of a LAFHA the relevant provision is subsection 23L(1) of the Income Tax Assessment Act 1936 (ITAA 1936) which states:

Income derived by a taxpayer by way of the provision of a fringe benefit is not assessable income and is not exempt income of the taxpayer

In general terms, a 'fringe benefit' is defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as a benefit provided to an employee by the employer in respect of the employee's employment which is not one of the benefits excluded from the fringe benefit definition by paragraphs (f) to (s) of the 'fringe benefit' definition. For the purposes of this ruling, the relevant paragraph is paragraph (f) which provides that:

· a payment of salary or wages or

· a payment that would be salary or wages if salary or wages included exempt income for the purposes of the ITAA 1936

will not be a fringe benefit.

Generally, most allowances are treated as a payment of 'salary or wages'. However, a LAFHA does not come within the definition of 'salary or wages'.

Therefore, in determining whether the allowance that you will receive will form part of your assessable income the initial question to consider is whether the allowance is a LAFHA. If it is, then it will not form part of your assessable income.

Section 30 of the FBTAA sets out the circumstances in which an allowance will be a LAFHA.

In summarising the requirements of subsection 30(1), an allowance will be a LAFHA if:

i) 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

ii) 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.

Can it be concluded that the proposed allowance will be paid to you to compensate you for additional non-deductible expenses and other disadvantages?

Although you may be incurring additional non-deductible expenses it needs to be concluded that some or all of the allowance is in the nature of compensation to you for those additional expenses.

According to your contract of employment your annual salary is $X. The amount of the proposed allowance will not be in addition to this.

Your contract does not state that you are entitled to be compensated for any additional non-deductible expenses such as accommodation and food. When your employer commences to pay the allowance to you your contract will not be changed.

These facts do not support the conclusion that the proposed allowance is in the nature of compensation for your additional accommodation and food expenses. Rather the facts support the conclusion that you will continue to be paid $X in salary and that part of that salary will be renamed a LAFHA.

We have therefore concluded that the proposed allowance will not be in the nature of compensation for additional expenses for accommodation and food. Consequently, the conditions in paragraph 30(1)(b) of the FBTAA will not be satisfied and the allowance is not a LAFHA.

Are you required to live away from your usual place of residence in order to perform the duties of employment?

In determining whether the additional expenses arise because of a requirement to live away from the usual place of residence it is necessary to identify the usual place of residence.

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

(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.

Guidelines for determining an employee's usual place of residence are provided by Miscellaneous Taxation Ruling MT 2030.

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.

As an example of the application of this general rule paragraph 22 states:

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 following facts indicate that your usual place of residence is in the country A:

· You were recruited from country A to work in Australia on a 457 visa for a period of four years. You intend to return to the country A at the end of your visa.

· You were previously living with your family and most of your possessions are in storage there. You do not have any family with you in Australia they are in the country A.

· You still have a number of economic ties to the country A.

Therefore, it is accepted that you are required to live away from your usual place of residence in order to perform your duties of employment.

Conclusion

Since it cannot be concluded that the proposed allowance is in the nature of compensation for your additional accommodation and food expenses, the allowance paid to you will not be a LAFHA. Rather, the allowance is part of your salary that will form part of your assessable income.

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