Edited version of private ruling

Authorisation Number: 1011755356456

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Ruling

Subject: living-away-from-home allowance

Question 1

Will the allowance that you will receive from your employer for rent and food form part of your assessable income?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

Relevant facts and circumstances

You are a foreign citizen.

You arrived in Australia in June 2009 on a student visa.

While you were studying you were offered full-time employment and you were granted a 457 temporary business visa for which you were sponsored by your employer.

Your original sponsoring employer merged with your current employer and your visa was transferred so that your current employer became your sponsor for the purposes of your visa.

You intend to return to your country of origin when the visa expires or on cessation of employment if your employment ceases before the visa expires.

You hold and maintain bank accounts and credit cards in your country of origin.

You have funds and investments in your country of origin which you will not be liquidating to transfer money to Australia.

All of your family members live in your country of origin and you have no ties to Australia.

Your employer is willing to apply living-away-from-home allowance to your salary and the allowance will comprise:

· a component for rent, and

· a component for food.

Under your employment contract you are entitled to be reimbursed for reasonable business expenses incurred by you in the performance of your duties.

Your contract will not change when the allowance is applied to your salary.

You will provide your employer with a living-away-from-home allowance declaration.

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 section 30 and

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

Reasons for decision

Summary

It cannot be concluded that the proposed allowance is in the nature of compensation for 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 do not form part of your assessable income. Subsection 6-15(3) provides that an amount that is 'non-assessable non-exempt income' is not assessable income.

Section 6-23 of the ITAA 1997 provides that an amount of ordinary 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 unless it is excluded by paragraphs (f) to (s) of the 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.

is not a fringe benefit.

Allowances are generally treated as a payment of 'salary or wages'. However a LAFHA does not come within the definition of 'salary or wages'.

Therefore, your allowance will form part of your assessable income unless it is a LAFHA.

Section 30 of the FBTAA sets out the circumstances in which an allowance is 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.

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

(i) 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.

Your contract of employment specifies the amount of your annual salary. 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 the amount specified in your contract as your annual 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, subsection 136(1) 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 Fringe benefits tax: living-away-from-home allowance benefits.

Paragraphs 15 to 18 of MT 2030 refer to various decisions of Taxation Boards of Review relating to the former 51A of the 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.

Paragraph 20 of MT 2030 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 of MT 2030 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 your country of origin:

· You are a citizen of your country of origin.

· You are in Australia on a 457 visa for a period of four years. You intend to return to your country of origin either at the end of your visa or on cessation of employment whichever occurs first.

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

· You still have a number of economic ties to your country of origin.

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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