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Ruling

Subject: Fringe benefits tax: Living-away-from-home allowance

Question:

Does the taxable value of the living-away-from-home allowance (LAFHA) that you intend paying to the employee depend upon whether the employee provides you with receipts for all his food and accommodation expenses?

Answers

No.

This ruling applies for the following period:

16 March 2011 to 15 March 2012

The scheme commences on:

16 March 2011

Relevant facts and circumstances

You have contracted an employee to work for you for 12 months.

The employee resides overseas but has temporarily relocated to Australia for the duration of his employment contract. At the termination of his employment he intends to return to his home overseas. He owns his home there which is where his family are.

You propose to pay your employee a LAFHA.

Your employee will provide you with the necessary LAFHA declaration.

You intend to pay $XXX.00 as the food component of his LAFHA.

The allowance you intend to pay your employee in respect of accommodation is $XXXX.00 per month. You have based this amount on current market rates for shared accommodation.

The total LAFHA allowance you intend paying your employee is therefore $XX,XXX per annum .

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 30

Fringe Benefits Tax Assessment Act 1986 Section 31

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

Does the taxable value of the living-away-from-home allowance (LAFHA) that you intend paying to the employee depend upon whether the employee provides you with receipts for all his food and accommodation expenses?

What is a LAFHA?

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.

Therefore an allowance will be a LAFHA where:

· an allowance paid by an employer to an employee is to compensate for additional non deductible expenses, or

· additional non deductible expenses and other additional disadvantages incurred, because

· the employee is required to live away from their usual place of residence in order to perform their employment related duties.

You advise that you will provide an allowance for food and accommodation, which are non deductible expenses, therefore if the employee is living away from their usual place of residence, the allowance will be a LAFHA.

If the allowance is a LAFHA the tax liability depends upon:

· the exempt accommodation component, and

· the exempt food component.

'Exempt accommodation component' and 'exempt food component' are defined in subsection 136(1) of the FBTAA. Both definitions provide that the exempt amount will depend upon whether the employee provides a living away from home declaration. If a declaration is not provided, the exempt components will have a nil value.

Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: Living-Away-From-Home Allowance benefits contains guidelines for determining the circumstances in which an allowance paid to an employee is to be treated as a LAFHA. At paragraph 4 MT 2030 discusses exempt accommodation as follows:

4. The exempt accommodation component is so much of the allowance as it is reasonable to conclude is in the nature of compensation for additional expenses on accommodation that the employee could reasonably be expected to incur.

There is no requirement for the amount to be based on actual figures. Paragraphs 27 and 28 of MT 2030 state:

27. It is in the precise nature of an allowance that it will not ordinarily be a precise measure of actual expenses of the recipient. Rather, as mentioned in paragraph 2, a living-away-from-home allowance is an allowance in the nature of compensation for additional expenses incurred, or additional expenses incurred an other disadvantages suffered, by an employee through having to live away from his or her usual place of residence.

28. That is, an employer will pay an allowance - perhaps on the basis of a survey of accommodation and living costs at the employee's temporary work location - in order to compensate the employee for accommodation and additional living expenses that the employee might be expected to incur. The allowance may also contain a component to compensate for general disadvantages such as the employee having to put up with isolation, harsh climatic conditions, changed lifestyle etc. Where there are a number of employees, e.g., accommodation at or near a construction site, identical amounts are often paid to employees on the same wage scale without regard being paid to any individual employee's actual outlay.

However, there must be a basis for the amount of compensation for accommodation, such as a survey of accommodation and living costs at the employee's temporary work location, as stated above in paragraph 28 of MT 2030.

The exempt food component is so much of the allowance as is reasonable compensation for additional expenses on food. It is arrived at by first ascertaining the 'food component' of the allowance. If the amount of the 'food component' is set with the intention that it covers all food costs of the employee and family, the exempt food component is the excess of that component over what the employee would normally spend on food if he or she was not living away from home. However, if the food component of the allowance has been set to reflect only additional costs by reducing the allowance for home food costs, and the amount of the reduction on this account equals or exceeds the statutory food amounts, the amount of the net food component is the exempt food component.

The 'statutory food amount' is defined in subsection 136(1) as $42 per week per adult and $21 per week for each child who is under 12 at the beginning of the relevant year of tax.

Therefore, where a LAFHA is provided to an employee, the taxable value of the LAFHA will be reduced by the exempt accommodation and food components if the employee provides a living-away-from-home declaration.

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