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Ruling

Subject: Living away from home allowance

Question 1

Is the employee living away from their usual place of residence for the purposes of section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) for the duration of their secondment to Australia with a local employer?

Answer: Yes

Question 2

If the answer to question 1 is yes, is the allowance paid for food costs, a living-away-from-home allowance (LAFHA) pursuant to section 30 of the FBTAA?

Answer: Yes

Question 3

If the answer to question 2 is yes, will the taxable value of the allowance be reduced to nil pursuant to section 31 of the FBTAA?

Answer

The taxable value of the allowance will be reduced to nil if the anticipated food costs are reduced by the statutory food amount and the employee provides a living-away-from-home declaration.

Question 4

Will the payments made to the real estate agent, for the employee's accommodation costs, be exempt accommodation expense payment benefits pursuant to section 21 of the FBTAA?

Answer: Yes

This ruling applies for the following periods:

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

The scheme commences on:

1 April 2011

Relevant facts and circumstances

The local employer is an Australian subsidiary of an overseas company.

The employee is an overseas citizen.

The employee's temporary 457 visa has expired. At the company's request the employee has recently applied for an extension to their 457 visa which if approved, will be for another four years.

The employee's intention was that they would be in Australia until the expiry of their initial 457 visa term, at which point is the time the employee was expected to return to their native country.

Upon arrival in Australia the employee was accompanied, and remains accompanied, by their family.

The employee intends to return to their native country in a senior management role with the parent company after the implementation of the new accounting and operating systems have been completed and an appropriate successor has been found which is expected to be before the four year visa extension expires.

The employee considers their native country to be their usual place of residence for the following reasons:

· they intend to return to their native country and to the same city at the conclusion of their Australian assignment

· they are a citizen of their native country and have remained a registered voter for Federal and State elections whilst on assignment in Australia

· they have maintained a substantial amount of furniture in storage in their native county

· they have family and social ties to their native country where their and their spouse's extended families reside

· they have no family ties to Australia apart from their spouse and child

· they and their spouse have considerable funds in their pension plans in their native country, which they intend to access on retirement in their native country. They continue to personally contribute to this scheme while working in Australia, as well as receive contributions via their employer.

· they have bank accounts and significant investments in their native country

· they have maintained their family health insurance policy in their native country while in Australia

· prior to commencing their role in Australia, they had no assets in Australia, and currently they hold only minor assets such as a car, furniture and a personal bank account. They do not own any property in Australia nor do they intend to purchase any property before returning to their native country.

· they remain on a temporary working visa and do not have an entitlement to remain in Australia permanently

The employer provided the employee with accommodation. The employer pays the accommodation costs directly to the property agent. The accommodation is based on the monthly rent detailed in the employee's tenancy agreement.

The employer provides the employee with a food allowance with the exempt food component determined in accordance with the Australian Taxation Office's guidance.

The employee has provided a declaration to the employer upon commencing their assignment stating their usual place of residence and where they were actually residing while living away from their usual place of residence.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 21

Fringe Benefits Tax Assessment Act 1986 Section 30(1)

Fringe Benefits Tax Assessment Act 1986 Section 31

Fringe Benefits Tax Assessment Act 1986 Section 136(1)

Reasons for decision

Question 1

Is the employee living away from their usual place of residence for the purposes of section 30 of the FBTAA for the duration of their secondment to Australia with a local employer?

Detailed reasoning

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 Fringe benefits tax: living-away-from-home allowance benefits (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 their 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 their 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 Case B47, 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 the employee's usual place of residence is in their native country:

· the employee has stated an intention to return to their native country since accepting the assignment to Australia and intends to return to their home city at the conclusion of their Australian assignment

· the repatriation clause included in the employee's original assignment letter illustrates that it was and remains the intention of the employer that they would return to their native country at the conclusion of their assignment

· the employee is a citizen of their native country and has remained a registered voter for Federal and State elections whilst on assignment in Australia

· the employee has maintained furniture in storage in their native country

· the employee has family and social ties to their native country where their and their spouse's extended families reside

· the employee has no family ties to Australia apart from their family who accompanied them to Australia and intend to return to their native country at completion of their Australian assignment

· the employee and their spouse have considerable funds in their pension plans in their native country, which they intend to access on retirement in their native country. They continue to personally contribute to this scheme while working in Australia, as well as receive contributions via their employer.

· the employee has bank accounts and significant investments in their native country

· the employee has maintained their family health insurance policy in their native country while in Australia

· prior to commencing their role in Australia, the employee had no assets in Australia, and currently they hold only minor assets such as a car, furniture and a personal bank account. They do not own any property in Australia nor do they intend to purchase any property before returning to their native country.

· the employee remains on a temporary working visa and does not have an entitlement to remain in Australia permanently

It is concluded that the employee is living away from home in accordance with paragraphs 20 and 22 of MT 2030 as they have taken up a position of limited duration with an intention to return to the same city in their native country upon expiration of their visa in 2015.

Question 2

If the answer to question 1 is yes, is the allowance paid for food costs, a living-away-from-home allowance (LAFHA) pursuant to section 30 of the FBTAA?

Detailed reasoning

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.

In summarising these requirements an allowance will be a living-away-from home-allowance if:

(a) the payment is an allowance

(b) 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

(c) 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.

In considering these requirements:

· the payment is made in respect to the employee's food costs is an allowance as it is a predetermined amount paid to cover the food costs that the employer is expected to incur

· these food costs are non deductible expenses, and

· as discussed above, the employee is living away from their usual place of residence.

Therefore, as the place of employment is in Australia and the usual place of residence is in the employee's native country the allowance will be a living-away-from-home allowance as it is paid to cover additional non deductible expenses that are incurred as a result of the employee being required to live away from their usual place of residence.

Question 3

If the answer to question 2 is yes, will the taxable value of the allowance be reduced to nil pursuant to section 31 of the FBTAA?

Detailed reasoning

Section 31 of the FBTAA sets out the method for calculating the taxable value of a LAFHA. It states that where fringe benefit is covered by subsection 30(1) the taxable value is:

the amount of the recipients allowance reduced by:

(i) …

(ii) any exempt food component;

'Exempt food component' is defined in subsection 136(1) of the FBTAA. The definition provides that the exempt amount will depend upon whether the employee provides a Living away from home declaration for the relevant year.

Exempt food component

If a declaration is provided, 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.

Declaration

According to the definition in subsection 136(1) the declaration must be given to the employer before the declaration date purporting to set out particulars of:

(i) the employee's usual place of residence during the recipients allowance period; and

(ii) the place at which the employee actually resided during the recipients allowance period;

The declaration date as defined in subsection 136(1) states:

in relation to an employer in relation to a year of tax, means the date of lodgement of the return of the fringe benefits taxable amount of the employer of the year of tax, or such later date as the Commissioner allows.

Recipients allowance period is also defined in subsection 136(1) as:

in relation to a living-away-from-home allowance fringe benefit means the period to which the recipients allowance relates.

Therefore a declaration must be given to you prior to the lodgement of your FBT return for each year the employee is in receipt of a LAFHA.

If a declaration is not provided, the exempt component will have a nil value.

You have advised that the amount of the food allowance is in line with the exempt food component of a LAFHA determined in accordance with the Australian Taxation Offices guidance.

Therefore the taxable value of the LAFHA will be reduced by the exempt food component if the employee provides the necessary declaration.

Question 4

Will the payments made to the real estate agent, for the employee's accommodation costs, be exempt accommodation expense payment benefits pursuant to section 21 of the FBTAA?

Detailed reasoning

In general terms, section 21 provides an exemption from fringe benefits tax for the payment of accommodation expenses incurred by an employee who is required to live away from his or her usual place of residence in order to perform the duties of their employment.

Section 21 of the FBTAA states the following:

Where -

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

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

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

(c) 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 that employment;

and

(d) 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.

For this section to apply there are five conditions that must be met. They are:

· an expense payment must be provided to a current employee of the employer

· the recipients expenditure must be in respect of accommodation for eligible family members

· the accommodation must not be provided while the employee is undertaking travel in the course of performing his or her employment

· the accommodation must be required solely because the employee is required to live away from his or her usual place of residence in order to perform their duties of employment, and

· the relevant declaration must be provided to the employer.

The first four of the above requirements have been met as:

· the employee is a current employee

· the expenditure is in respect of accommodation for eligible family members

· the employee is not travelling, and

· the accommodation is solely required because the employee is required to live away from their usual place of residence.

The fifth requirement will be met where the employee provides you with a completed declaration.

Conclusion

Where all the conditions required by section 21 of the FBTAA have been satisfied, the accommodation expense payment benefit will be an exempt accommodation expense payment fringe benefit.

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