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Ruling

Subject: Fringe benefits tax

Question 1

Is the allowance paid to your employee considered to be a living-away-from-home allowance (LAFHA) fringe benefit in accordance with subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer: Yes.

Question 2

If the answer to 1 is yes, is the taxable value of the LAFHA fringe benefit reduced by the exempt food/accommodation component pursuant to section 31 of the FBTAA?

Answer: Yes.

Question 3

If the employee is reimbursed for the cost of his accommodation will the reimbursement be an exempt benefit under 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:

31 October 2011

Relevant facts and circumstances

You have seconded your employee to work in Australia from overseas.

Your employee and his wife:

· were born overseas

· hold foreign passports

· own a property

· hold a bank account

· moved to an adopted overseas country, rented out the family property and shipped all personal goods, such as furniture, clothes, whitegoods and electrical goods there;

· have a long term lease on a rental property in their adopted country

· have not purchased a property in the adopted country because of the high property prices

· hold investments including a pension, bank accounts and shares

· have children who born in the adopted country

· regard the adopted country as their usual home and intend to apply to obtain permanent residency status once as they can satisfy the minimum residency period.

The employee:

· commenced permanent employment with you in the adopted country

· has a pension fund from a previous employer in his country of birth

· regards the adopted country to be the best market for him to advance his career.

The company in the adopted country has contributed to a pension fund in the adopted country on his behalf.

A copy of your employee's offer for employment with you has been provided outlining the terms of the agreement.

You also advised that the employee:

· is to be seconded to Australia for a period up to 3 years

· is entering Australia on a subclass 457 visa, with an expiry period of 4 years and is considered a temporary resident of Australia for tax purposes

· will promote and co-ordinate cross border business transactions

· will train local employees to take over his role upon completion of his Australian secondment

· will rent accommodation in Australia

· will ship his furniture and other goods to Australia

· does not intend to purchase property in Australia

· has no investments in Australia

· will open an Australian bank account to facilitate his salary payments

· does not intend to apply for permanent residency

· will make annual trips back to his adopted country to visit friends and maintain the network established in his adopted country

· elected to leave his pension in the adopted country and not withdraw it during his secondment to Australia

· intends to return to his adopted country at the end of his secondment in Australia and reside in his adopted country on a long term basis and

· at the end of each FBT year will provide you with a declaration stating that his usual home is located in his adopted country.

You will:

· pay for the cost of shipping his furniture and other goods to Australia from his adopted country and then shipping them back to his adopted country at the end of his secondment in Australia;

· pay for his rental accommodation in Australia, up to a pre-determined cap amount; and

· repatriate him to his adopted country at the end of his secondment.

The employee is regarded as your employee in his adopted country who is on secondment to Australia and they will sponsor his working visa upon his repatriation to his adopted country.

Your have also provided the following information:

The remuneration per annum consists of base salary and allowances, which includes a living away from home food allowance per annum. This amount is the exempt food component.

A per annum accommodation allowance.

When suitable accommodation is found a copy of the lease agreement will be provided to you, to substantiate the accommodation costs.

Should the cost of accommodation be more than the allowance paid you will reimburse the employee for the amount over the accommodation allowance as part of a salary sacrifice arrangement.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 20

Fringe Benefits Tax Assessment Act 1986 Section 21

Fringe Benefits Tax Assessment Act 1986 Subsection 30(1)

Fringe Benefits Tax Assessment Act 1986 Section 31

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

Question 1

Is the allowance paid to your employee considered to be a living-away-from-home allowance (LAFHA) fringe benefit in accordance with subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

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 the requirements of subsection 30(1), an allowance will be a living-away-from home-allowance if:

· 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

· 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.

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

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

Do 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 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 place at which the person resides; or

· 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 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 general rules set out in MT 2030 and the factors discussed by the AAT:

· the employee has been an employee of your company in his adopted country

· the employee has been seconded to Australia for a limited time to promote cross border business transactions

· at the conclusion of the secondment the employee will return to his adopted country, and

· your company in his adopted country will sponsor the employee's working visa upon his repatriation to his adopted country.

These factors indicate that the place of permanent employment is in his adopted country. This has not altered with the secondment to Australia and in accordance with paragraph 19 of MT 2030 is an indication that the usual place of residence is his adopted country.

Further support for the conclusion that the usual place of residence is his adopted country is provided by the following factors which establish an ongoing connection with his adopted country:

· the employee is in Australia on a Subclass 457 temporary resident visa;

· he will return to his employer in his adopted country at the end of his secondment

· he has bank accounts and shares in his adopted country

· he has a pension in his adopted country

· he intends to apply for permanent residency in his adopted country

· he does not intend to apply for permanent residency in Australia, and

· he will make annual trips back to his adopted country

Conclusion

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

Question 2

Will the taxable value of the LAFHA fringe benefit reduced by the exempt food/accommodation component 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) any exempt accommodation component; and

(ii) any exempt food component; or

'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.

Exempt accommodation expenses

If a declaration is provided, the exempt accommodation component is so much of the allowance as is reasonable compensation for additional expenses on accommodation that the employee could reasonably be expected to incur.

As the accommodation component is equal to the annual rent being paid by the employee the amount of the accommodation component will be the exempt accommodation component if the employee provides the necessary declaration.

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.

You have advised that the allowance is paid to cover the amount over what the employee would normally spend on food, therefore the allowance consists of the exempt food component.

Conclusion

As the employee will provide you with the appropriate living-away-from-home declaration the LAFHA can be reduced pursuant to section 31 of the FBTAA.

Question 3

If the employee is reimbursed for the cost of his accommodation will the reimbursement be an exempt benefit under section 21 of the FBTAA?

Detailed reasoning

Section 21 of the FBTAA relates to exempt accommodation expense payment benefits, as follows:

Where -

(a) 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;

(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.

In considering these requirements:

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

The employee will be incurring rental expenses relating to his accommodation and will be reimbursed by you. Section 20(b) of the FBTAA states that an expense payment benefit occurs when a provider reimburses another person, a recipient, in whole or in part, in respect of an amount of expenditure incurred by the recipient. You are the provider who reimburses the recipient, the employee, for rent expended on his accommodation. The employee is a current employee of yours, and the benefit is provided in respect of his employment.

Therefore an expense payment benefit is provided in a year of tax to a current employee of an employer in respect of their employment.

(b) Is the recipient's expenditure in respect of accommodation for eligible family members?

The recipient's expenditure is in respect of rental accommodation for the employee, his wife and children. Each of these is an eligible family member as defined in subsection 136(1) of the FBTAA.

(ba) Is the accommodation provided while the employee is undertaking travel in the course of performing the duties of that employment?

The accommodation is not provided while the employee is undertaking travel in the course of performing the duties of his employment.

(c) Is the accommodation 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 employment?

As discussed in Question 1, the employee is living away from his usual place of residence in order to perform the duties of his employment.

(d) Has the employee given to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out -

· the employee's usual place of residence; and

· the place at which the employee actually resided while living away from his or her usual place of residence?

You state that at the end of each FBT year the employee will provide you with a declaration stating that his usual home is located in his adopted country.

Conclusion

Where you reimburse the employee for his accommodation expenses the benefit will not be a LAFHA. However as all the conditions required by section 21 of the FBTAA are satisfied, the accommodation expense payment benefit will be an exempt expense payment fringe benefit.

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