Edited version of private ruling

Authorisation Number: 1011835814388

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Ruling

Subject: Living away from home allowance

Issue 1

Question

Will the allowance you receive from your employer for accommodation and food be a living-away-from-home allowance (LAFHA)?

Answer: Yes.

Issue 2

Question

Does the LAFHA that you receive from your employer have to be included in your assessable income?

Answer: No.

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

Year ending 30 June 2015

Year ending 30 June 2016

Relevant facts and circumstances

You have entered into an employment contract with a new employer.

The appointment is based interstate.

You currently reside at your residence with your family.

Your family will continue to reside in your current residence and you will both commute between this residence and your interstate residence to see each other every so often during the period of your employment contract.

The majority of your personal belongings are in your current residence.

You intend to return to your current residence at the end of your employment contract.

You have taken out a lease in a share-house in the State that your new workplace is located.

Your employer has agreed to pay you a living-away-from-home allowance consisting of a component for additional accommodation and a component for food expenses.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 30,

Fringe Benefits Tax Assessment Act 1986 subsection 30(1),

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

Income Tax Assessment Act 1936 section 23L,

Income Tax Assessment Act 1997 section 6-5, and

Income Tax Assessment Act 1997 section 15-2.

Reasons for decision

Summary

The allowance that you receive from your employer for food and accommodation is considered to be a living-away-from-home allowance (LAFHA). Furthermore, as a LAFHA is considered to be a fringe benefit, the allowance received from your employer is not required to be included in your assessable income.

Issue 1

Detailed Reasoning

Will the allowance you receive from your employer for accommodation and food be a LAFHA?

Section 30 of the Fringe Benefits Tax Assessment Act 1986 (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 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 you for:

· additional non deductible expenses incurred by the you during a period; or

· additional non deductible expenses and other additional disadvantages to which you are subject during a period; and

(b) the additional expenses and other disadvantages arise because you are required to live away from your usual place of residence in order to perform the duties of employment.

(a) Is the allowance paid for additional non deductible expenses and other disadvantages?

The allowance will be paid to compensate you for additional food expenses and accommodation expenses. As you will not be able to claim an income tax deduction for these expenses this requirement is satisfied.

(b) Do the additional expenses arise because you are required to live away from your usual place of residence in order to perform the 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 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 the 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 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 have another residence;

· you will return to your other residence a number of times per year;

· the vast majority of your belongings are kept at the other residence; and

· your family will continue to reside in the other residence.

As all the required conditions have been met, the allowance paid to you is a LAFHA benefit pursuant to subsection 30(1) of the FBTAA.

Issue 2

Detailed Reasoning

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you are an Australian resident, your assessable income includes all income derived directly or indirectly from all sources, whether in or out of Australia during the income year.

Allowances are assessable under section 15-2 of the ITAA 1997. However, section 23L of the ITAA 1936 provides that where a taxpayer receives a fringe benefit or an exempt benefit as per the FBTAA, then the value of the benefit that is received is not assessable income.

An item will be a fringe benefit if it is a benefit under the FBTAA that has been provided to the employee in respect of their employment by their employer. A LAFHA satisfies these requirements and is considered to be a fringe benefit.

In your case you have been receiving a LAFHA from your employer to cover your food and accommodation expenses. As a LAFHA is considered to be a fringe benefit, it is non-assessable non-exempt income under section 23L of the ITAA 1936.

Therefore you are not required to include this allowance in your assessable income; however you are also not entitled to claim a deduction for any expenses incurred against this allowance.

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