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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

No.

This ruling applies for the following periods

1 July 2010 to 30 June 2011

1 July 2011 to 30 June 2012

1 July 2012 to 30 June 2013

1 July 2013 to 30 June 2014

The scheme commences on

1 April 2011

Relevant facts and circumstances

You are a citizen from overseas and have lived there all your life.

You were living with your parents rent free prior to arriving in Australia to commence employment.

You arrived in Australia from overseas after receiving an offer of employment from an Australian based employer while still overseas.

You were on a sponsored 457 visa.

You intend to return back from your overseas country at the end of your visa.

All of your family reside overseas.

The majority of your possessions remain in storage overseas.

You continue to hold and maintain bank accounts and credit cards overseas.

You have funds/investments from overseas that you will not be liquidating.

You received a living-away-from-home allowance from your employer at the commencement of employment which consisted of rent allowance and food allowance per month.

The employer asked that you to commence employment in another entity.

Your visa was transferred to the new organisation.

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

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

Your employment contract has been amended. An allowance is paid comprising:

· an accommodation component per week paid to compensate you the cost of renting, and

· a food component per week paid to compensate you for the additional food costs.

This allowance will be received in addition to your annual salary.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Section 30

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

Taxation Administration Act 1953 Schedule 1 section 12-35

Taxation Administration Act 1953 Schedule 1 section 12-40

Taxation Administration Act 1953 Schedule 1 section 12-45

Taxation Administration Act 1953 Schedule 1 section 12-115

Taxation Administration Act 1953 Schedule 1 section 12-120

Reasons for decision

Question 1

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

Subsection 6(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income consists of ordinary and statutory income. However, this is qualified by subsection 6-15(3) which states:

If an amount is non-assessable non-exempt income, it is not assessable income.

'Non-assessable non-exempt income' is defined in section 6-23 to be an amount which the ITAA or another Commonwealth law states is not assessable income and is not exempt income.

An example of income that is not assessable income, nor exempt income is provided by 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 in respect of the 'employment' of the employee.

However, paragraph (f) of the 'fringe benefit' definition provides that a payment of 'salary or wages' will not be a fringe benefit.

'Salary or wages' is defined in subsection 136(1) of the FBTAA to mean a payment from which an amount must be withheld under either section 12-35, 12-40, 12-45, 12-115 or 12-120 of Schedule 1 to the Taxation Administration Act 1953 (TAA). The relevant section for the purpose of this ruling is section 12-35 which states:

An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

In considering which Act applies to the payments, paragraph 1 of Taxation Ruling TR 92/15 Income tax and fringe benefits tax: The difference between an allowance and a reimbursement (TR 92/15) states:

Other than living-away-from-home allowances, most allowances will fall for consideration under the ITAA.

Will the allowance be a living-away-from-home allowance (LAFHA)?

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

Will the allowance be paid to compensate you for additional non-deductible expenses and other disadvantages?

Your contract states that the allowance will be paid to compensate you for additional food expenses and the cost of renting. As you will not be able to claim an income tax deduction for these expenses, this requirement is satisfied.

Will the additional expenses arise because you are required to live away from your usual place of residence in order to perform your 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.

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.

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.

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 you are living away from your usual place of residence:

· you are in Australia on a Subclass 457 visa temporary resident visa

· you intend to return overseas at the end of your visa

· your possessions are in storage with your parents overseas

· your immediate family resides overseas, and

· you maintain your bank accounts and credit cards overseas.

Therefore, your usual place of residence is considered to be overseas and your employment location is in Australia. It is accepted that the expenses arise as a result of you being required to live away from your usual place of residence in order to perform your duties of employment.

Conclusion

As all the required conditions will be met, the allowance to be paid will be a living-away-from-home allowance benefit pursuant to subsection 30(1) of the FBTAA and not form part of your assessable income.

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