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Ruling

Subject: Living-Away-From-Home Allowance

Relevant facts and circumstances

Your employee has lived interstate residing in a residential property which is owned with his spouse.

Your employee accepted employment with you and moved to your location for the duration of employment.

The employment contract is for a set period of time and cannot be extended beyond the term of employment.

Upon expiry or termination of the employment contract by either party, your employee intends to return to his interstate residence to live with his family.

Upon commencing employment with you, your employee obtained a one year lease for a small apartment.

Your employee will return interstate approximately every fortnight to visit his family, where his spouse will continue to work and reside with his child, for the duration of his employment contract.

Your employee will continue to maintain the following connections interstate:

· the motor vehicle will be garaged at the family residence

· membership of a sports centre

· membership of the Owners Corporation Committee of the building in which the family home is located

· bank accounts interstate

· personal effects and assets are in the family home interstate

· the family pet will continue to live interstate.

Your employee will sign the appropriate living-away-from-home declaration by the required date.

The payments you propose to make will be in compensation for additional expenses incurred while your employee is living away from home. This will be funded via a salary sacrifice arrangement.

You will reimburse your employees rental costs.

You will also provide an allowance consisting of a food component as set out in the Commissioner's annual determination reduced by the statutory food amount.

The payments and allowance will be made with the same frequency as the regular payroll.

Reasons for decision

Question 1

Will the reimbursement of rental expenses be exempt under section 21 of the FBTAA?

Detailed reasoning

Section 21 of the FBTAA states:

where:

(b) an expense payment benefit is provided in a year of tax to a current employee of an employer in respect of his or her employment;

(c) the recipients expenditure is in respect of accommodation for eligible family members;

(ba) the accommodation is not provided while the employee is travelling in the course of performing the duties of that employment;

(d) the accommodation is required 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 their employment; and

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

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

(ii) 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.

Therefore the reimbursement of rental expenses will be exempt under section 21 of the FBTAA if the following conditions are satisfied:

1. the benefit is an expense payment benefit

2. the benefit is provided to a current employee

3. the expenditure is for accommodation for eligible family members

4. the accommodation is not provided while the employee is travelling on work

5. the accommodation is required as the employee is required to live away from their usual place of residence to perform their duties of employment, and

6. the employee provides a declaration in a form approved by the Commissioner.

1. Will an expense payment benefit be provided?

Section 20 of the FBTAA states:

Where a person (in this section referred to as the ``provider''):

(a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the ``recipient'') to pay an amount to a third person in respect of expenditure incurred by the recipient; or

(b) reimburses another person (in this section referred to as the ``recipient''), in whole or in part, in respect of an amount of expenditure incurred by the recipient;

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.

As you will reimburse the employee for his rental costs the reimbursement will be an expense payment benefit.

2. Will the benefit be provided to a current employee?

The employee has entered into an employment contract with you, therefore this condition is satisfied.

3. Will the expenditure be for accommodation for eligible family members?

The term 'eligible family member' is defined in subsection 136(1) of the FBTAA as follows:

(a) in relation to an employee who is required to live away from his or her usual place of residence during a period in order to perform the duties of his or her employment:

i. the employee; or

ii. ….

Therefore the employee will be an eligible family member if he is required to live away from his usual place of residence in order to perform his work duties.

4. Will the accommodation be provided while employee is travelling in course of their employment?

Your employee will not be travelling on work while undertaking his employment duties.

5. Will the accommodation be required because employee required to live away from their usual place of residence to perform their 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:

(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.

In the absence of a legislative reference it is relevant to refer to the ordinary meaning of 'usual'. The Maquarie 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 decisions of Taxation Boards of Review relating to the former 51A of the Income Tax Assessment Act 1936 (ITAA1936). 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.

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.

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 that your employee is living away from his usual place of residence:

· he maintains a family home interstate

· his spouse and child will remain in the family home interstate

· his personal assets are interstate

· he intends to return to his interstate home every fortnight

· his employment with you is for a finite period.

6. Will the employee provide you with a declaration in a form approved by the Commissioner?

You advise that you will obtain the necessary declaration signed by the employee.

Conclusion

As all the required conditions are met the reimbursement of rental expenses will be exempt accommodation expense payment benefits.

Question 2

Will the payments paid to your employee be a LAFHA under section 30 of the FBTAA?

Detailed reasoning

Section of the 30 of the FBTAA sets out the circumstances in which a payment to an employee will be a LAFHA 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 payments will be a LAFHA if:

(a) it is reasonable to conclude from all the surrounding circumstances that some or all of the payments are 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) Will the payment be for additional non deductible expenses and other disadvantages?

The payments will be paid to compensate the employee for additional food expenses. As the employee would not be able to claim an income tax deduction for these expenses this requirement is satisfied.

(b) Will 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?

In determining whether the additional expenses arise as a result of the employee being required to live away from his usual place of residence it is necessary to identify the employee's usual place of residence.

It has been determined above that the employee's usual place of residence is interstate.

Therefore as the usual place of residence is interstate it is accepted that the expenses on food will arise as a result of the employee being required to live away from his usual place of residence in order to perform his duties of employment.

As all the required conditions have been met, the employee will receive a living-away-from-home allowance pursuant to subsection 30(1) of the FBTAA.

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