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Ruling

Subject: Fringe benefits tax - exempt accommodation benefit

Question 1

Is the accommodation provided to the employee by the employer, an exempt accommodation benefit under subsection 47(5) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer 1

Yes.

This ruling applies for the following period

1 April 20011 to 31 March 2012

The scheme commenced on

1 January 2004

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

1. The employer provides its employee with residential accommodation as they are required to live in the residential accommodation on the employer's premises and away from their usual place of residence, in order to perform the duties of their employment under the contract of employment.

2. The employee owns a property. The property is a few hours drive from the employer's premises. Prior to the employee's appointment at the employer, the employee resided at their property.

3. The employee's property has never been made available for rent since it was acquired.

4. The electricity account for the property is in the name of the employee.

5. The employee's furniture and effects are kept at the property.

6. Since the employee's employment with the employer, the employee has resided in their property during periods of when not required to be at the employer's premises.

7. It is the employee's intention to return to their property when the employee retires from the employer's position.

8. The employee has resided at the accommodation on the employer's premises since the commencement of their duties.

9. The employer requires the employee to live in the accommodation on the employer's premises as the employee is required to be actively engaged in the management and care of it employment duties.

10. Notwithstanding the distance of the employee's property, the employee is required to remain at the employer's premises to fulfill further duties and responsibilities as noted in the employment contract.

11. The employee has a number of duties and responsibilities under their employment contract therefore it would not be possible for the employee to perform those duties without living away from their property and residing in accommodation on the employer's premises

Relevant legislative provisions

Fringe Benefit Tax Assessment Act 1986 section 45

Fringe Benefit Tax Assessment Act 1986 subsection 47(5)

Fringe Benefit Tax Assessment Act 1986 subparagraph 47(5)(d)(ii)

Fringe Benefit Tax Assessment Act 1986 subsection 136(1)

ATO view documents

Miscellaneous Taxation Ruling MT 2030

Other references (non ATO view, such as court cases)

The Compass Group (VIC) Pty Ltd as trustee for the White Roche and Associates Hybrid Trust [2008] AATA 845

Case U110 87 ATC 663

Reasons for decision

These reasons for decision accompany the Notice of private ruling.

Question 1

Is the accommodation provided to the employee by the employer, an exempt accommodation benefit under subsection 47(5) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

1. A 'fringe benefit' will arise from providing a accommodation on the employer's premises to the employee by the employer as it is a 'benefit' provided to an employee by the employer by reason of the employee's employment does not come within paragraphs (f) to (s) of the 'fringe benefit' definition under section 136 of the FBTAA.

2. Where the accommodation is provided to the employee solely because the employee is required to be away from their usual place of residence, then the residual benefit may be exempt benefit under subsection 47(5) of the FBTAA if all the requirements of that subsection are met.

3. In this case the employee is receiving an exempt accommodation benefit under subsection 47(5) of the FBTAA as the employee is required to live away from their property in order to perform the duties of their employment.

Detailed reasoning

4. In general terms, an employer is liable to pay fringe benefits tax when it provides a fringe benefit to its employees. A fringe benefit is defined within subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as being a benefit:

· provided to an employee or associate;

· by the employer, an associate, or under an arrangement with the employer, or associate;

· in respect of the employment of the employee

unless the benefit is one of the benefits that are specifically excluded from the definition.

5. A residual benefit will arise under section 45 of the FBTAA where a unit of accommodation is provided to an employee in respect of his or her employment.

6. In this case the employer provides the employee with residential accommodation in respect of their employment.

7. Subsection 47(5) of the FBTAA provides that the accommodation provided will be an exempt benefit where the employee is required to live away from their usual place of residence in order to perform their employment duties. Subsection 47(5) of the FTBAA states:

(5) [Living-away-from-home accommodation] Where:

(a) a residual benefit consisting of the subsistence, during a year of tax, of a lease or licence in respect of a unit of accommodation is provided to an employee of an employer in respect of his or her employment;

(b) the unit of accommodation is for the accommodation of eligible family members and is provided 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;

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

(d) either of the following conditions is satisfied:

(i) subsection (7) applies in relation to the provision of transport for the employee in connection with travel in the period in the year of tax when the lease or license subsisted, being travel between the employees usual place of residence and the employees usual place of employment;

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

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

(B) 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.

8. An exempt benefit under subsection 47(5) of the FBTAA cannot arise if the relevant employee is not living away from their usual place of residence.

9. In applying subsection 47(5) of the FBTAA to the employee as described in the facts, we need to consider the following primary question:

a) Is the employee required to live away from their usual place of residence in order to perform their employment duties?

10. Miscellaneous Taxation Ruling MT 2030, Fringe benefits tax: living-away-from-home allowance benefits, provides guidance on how the Commissioner determines whether an employee is living-away-from-home.

11. Notwithstanding the fact that MT 2030 discusses living away from home allowances, we note that the analysis in MT 2030 in relation to 'usual place of residence' and 'living away from home' is equally relevant to living away from home accommodation under subsection 47(5) of the FBTAA.

12. MT 2030 refers to various decisions of Taxation Boards of review dealing with whether a particular employee was living away from his "usual place of abode" and states that these decisions are useful in establishing principles for determining whether or not an employee may be regarded as living away from his or her usual place of residence for fringe benefits tax purposes. At paragraph 13 of MT 2030 the Commissioner considers the words 'abode' and 'residence' as being synonymous for these purposes. As such, no distinction is made in the meaning of the terms 'usual place of residence', 'usual place of abode' and 'home'.

13. We note that MT 2030 considers primarily those situations where the employee's employment locality is of such distance from the employee's former place of residence as to prevent an employee from commuting daily and requires them to have a temporary residence closer to the employment locality in order to perform their duties of employment. In contrast, in relation to boarding school employees, it is the nature of the duties the employees are required to perform that requires the employees to live at a particular place (being at or adjacent to a boarding house) irrespective of how near or far their former place of residence (claimed to be their usual place of residence) may be.

14. An employee may be required to live at or adjacent to particular premises in order to perform their duties of employment. Whilst this may require the employee to leave their usual place of residence, it does not automatically follow that the employee is living away from their usual place of residence. In order to answer this question of fact we first need to determine the location of the employee's usual place of residence. Each employee's situation needs to be considered on its own merits taking into account all the relevant facts and circumstances of that particular employee.

15. At Paragraph 57 of The Compass Group (VIC) Pty Ltd as trustee for the White Roche and Associates Hybrid Trust [2008] AATA 845 (The Compass Group) Deputy President S A Forgie states:

57. … it could easily be concluded that the place at which a person is required to live in order to perform the duties of employment has become the person's usual place of residence. That comes about because of the extended meaning given to the expression "place of residence" in s 136(1) of the FBTA Act. It includes not only the place at which the person resides as it does in the general law but extends to a place at which the "person has sleeping accommodation". In both instances, it includes them whether on a "permanent or temporary basis". Under this definition, a person who is required to travel to a place of work and to stay in dormitory accommodation, for example, for extended and regular periods of time would have a place of residence in light of the definition. If the periods away from the place of work were short even if regular, the dormitory accommodation would be a place of residence that could also be said to be the person's "usual" place of residence. It would be "usual" in the sense that it would be customary and regular and would have that characterisation even when the person maintained another place of residence that could also be described as usual.

16. Having identified the employee's usual place of residence, or places of residence, if there is more than one, we then need to answer the question of whether the employee is required to live away from that place, or one of them, in order to perform the duties of the employment?

17. The answer to this question may be found with guidance from the FBTAA, MT 2030 and the principles that can be gleaned from numerous cases on this subject.

18. At paragraphs 58 and 59 of the Compass Group case Deputy President S A Forgie also states:

58. ... Any place that becomes the usual place of residence by virtue of performing the duties of the employment necessarily falls outside the scope of the question.

59. It is a question that must be asked at the commencement of the time at which the person begins to reside at the place at which it is said his or her employment requires that he or she live but must also be asked during the period. That this is so follows from the fact that a person may be required to live away from his or her usual place of residence in order to perform the duties of his or her employment at the outset but circumstances may change. The person may, for example, decide to lease the place that is his or her usual place of residence so that, even if initially required to work away from it, that place can no longer be regarded as his or her usual place of residence for it is no longer a place to which he or she has access let alone able to reside in.

19. An underlying theme of the cases dealing with the subject of living away from home is a general presumption that an employee's usual place of residence is normally found near to the employee's fixed or permanent employment base. Fixed or permanent in this sense does not mean everlasting, but is used in contrast to temporary or transitory.

Place of residence

20. For the purposes of the FBTAA a place of residence is defined in subsection 136(1) as:

in relation to a person, means:

(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.

21. In respect of 'a place of residence' paragraph 12 of MT 2030 states:

A place of residence of a person is thus the place where he or she resides or has some form of sleeping accommodation. The customary meaning of the word "reside" is to dwell permanently or for a considerable time, or have one's abode for a time. In turn, "residence" means the place, especially the house, in which one resides; a dwelling place; or a dwelling.

22. At paragraphs 32 and 33 of The Compass Group (VIC) Pty Ltd as trustee for the White Roche and Associates Hybrid Trust [2008] AATA 845 (the Compass Group case) Deputy President S A Forgie states:

32. It is immediately apparent from the definition of the expression "place of residence" in subsection 136(1) of the FBTAA that Parliament has given it a wider meaning than was intended under the general law. Under the general law, it is clear from the authorities to which I have referred that a place at which a person resides, and so is a place of residence, is a place with which a person has retained a continuity of association together with an intention to return to it and an attitude that the place remains home. A person may have but one such place or may have more than one. Paragraph (a) of the definition of "place of residence" in s 136(1) contemplates a residence of that sort even though it provides that it may be on a "permanent or temporary basis". It does so by providing that a "place of residence" means "a place at which a person resides". The word "reside" means "... to live or have one's home there, especially permanently ...".

33. Paragraph (b) of the definition, however, goes a long way beyond the general law when it provides that a "place of residence" also means "sleeping accommodation" "whether on a permanent or temporary basis" and whether or not on a shared basis. A place at which a person resides contemplates that it will also provide sleeping accommodation but sleeping accommodation does not necessarily contemplate that the person's attitude to it is that it is his or her home.

Usual place of residence

23. The term 'usual place of residence' is not defined in the FBTAA.

24. Paragraph 19 of MT 2030 states that an underlying theme of the cases that have considered this subject is a general presumption that a person's usual place of residence will be close to the place where he or she is permanently employed. Paragraph 19 also states that an employee who changes his or her place of residence because of a change in the location of a permanent job, whether by reason of a transfer with the same employer or a change of employment, would not usually be living away from home on moving to a new place of residence close to the new job location.

25. Paragraphs 11-25 of MT 2030 elaborate on what is meant by usual place of residence when determining whether an employee is living away from home.

26. Paragraph 14 of MT 2030 states:

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 locality...

27. The effect of paragraph 14 of MT 2030 is that there must be something more than simply changing your residence because of temporary employment. To be regarded as living away from home, the residence you lived in prior to changing your residence for your employment must have been your usual place of residence and you must intend to return there when the temporary relocation has ended.

28. In accordance with paragraph 14 of MT 2030, for an employee to be living away from home for the purposes of the FBTAA, it is therefore necessary to conclude that:

· the employee has more than one place of residence, one which the employee considers to be their usual place of residence and another temporary place of residence closer to where the employee's temporary job is located;

· the employee is required to live away from their usual place of residence in order to work temporarily for the employer at the temporary job site; and

· the employee has an intention or expectation to return to live in their usual place of residence on cessation of work at the temporary job site.

29. These are discussed below in the context of MT 2030, the relevant principles that have been established by decisions made in various Taxation Board of Review cases on the former income tax provision (section 51A of the ITAA 1936) that authorised deductions for employees being paid a living-away-from-home allowance, and more recently, The Compass Group case.

30. The following is a summary of the general principles relating to living away from home as established by MT 2030 and cases decided in courts and tribunals.

A choice between two places of residence

31. It is considered that whether an employee is living away from his or her usual place of residence normally involves a choice between two places of residence.

32. However, in accordance with paragraph 30 of MT 2030 the FBTAA does not express a requirement for a person to qualify as having a "usual place of residence", that it be established that he or she actually have such a residence. If the employee is one of a class of employees, (e.g. diplomats posted overseas, foreign experts employed in Australia, construction workers at a remote construction site etc). Consequently, this does not prevent some employees such as those mentioned from being regarded as living away from their usual place of residence notwithstanding that they do not actually have a strong connection with a usual place of residence.

33. MT 2030 also refers to the need for the employer to obtain from the employee a declaration in the approved form and at paragraphs 33 and 34 it states:

33. While an employee eligible to make such a declaration would normally be able to indicate that residential premises are being kept at the place where he or she usually resides, that may not always be the case. For example for financial reasons an expatriate coming to Australia to work for a limited but substantial period may have terminated the lease on a house, flat or apartment where he or she lived in the home country intending to re-lease it or lease another home on return. Similarly a home could have been sold with the intention of acquiring another. Provided the tests set out in paragraphs 11-25 are satisfied and the expatriate intends to return to the same city or district to live upon resuming residence in the home country, he or she would be entitled to declare that his or her usual place of residence is that city or district.

34. Similar principles would apply in relation to say an Australian resident temporarily employed abroad or an employee transferred for a fixed term from one State in Australia to another or from a city to a rural district or vice versa.

Summary

34. An employee's usual place of residence is normally found near to the employee's fixed or permanent employment base. Fixed or permanent in this sense does not mean everlasting, but is used in contrast to temporary or transitory.

35. An employee's usual place of residence is not determined merely by:

· what property the employee owns nor where the employee was previously domiciled;

· The fact an employee's employment is temporary; or

· The fact an employee has an intention or expectation to return to a former place of residence.

36. Once a person has established a home at a particular place, the person does not necessarily cease to be a resident there because he or she is physically absent. The general test is whether the person has retained a continuity of association with the place together with an intention to return to that place and an attitude that, that place remains home.

37. More specifically, taking into account MT 2030 and the various court and tribunal cases over the years, an employee's usual place of residence is determined by considering various factors and applying appropriate weightings to those factors, these factors include:

(a) the nature of the employee's employment and whether the move to another place was a temporary or permanent move;

(b) the employee's place of residence (the former place of residence) before he or she obtained another place of residence (the temporary residence);

(c) the employee's continuing connection/ties with the former place of residence, in particular:-

(i) whether the employee maintained/retained the former place of residence during the period the employee resided at the temporary residence;

(ii) whether or not the former place of residence was a place to which the employee could return at will if he or she so wished;

(iii) whether the employee's family continued to live in the former place of residence during the employee's temporary absence; and

(iv) the frequency of the employee's visits to the former place of residence and use of this residence as a place of residence;

(d) whether the employee intends or expects to return to live at the former place of residence on cessation of work at the temporary locality; and

(e) any unique or special circumstances.

(a) The weighting given to this factor is normally relatively high in view of the presumption that an employee's usual place of residence is normally found near to the employee's permanent employment base. However, this weighting reduces substantially where an employee's circumstances are considered to be similar to those considered in case B47 (1951) 2 TBRD 201, and case C55, 71 ATC 242.

Further, it is noted that in each of these cases:

·The employee continued to maintain strong connections/ties with the former place of residence in that the employee's spouse, in the first mentioned case and the employee's spouse and dependants in the second case, resided at the place of residence that was accepted as the employee's usual place of residence. The connections/ties were further strengthened by the employee returning regularly, (weekly in the first mentioned case and fortnightly in the second case) to their usual place of residence, (from the temporary place of residence); and

·The employee's temporary residence was in a remote mining town where it is unlikely that an employee's family could or would establish a home for a considerable time simply due to the lack of facilities that are available.

It is considered that these 2 cases are the exception to the rule on the basis of their particular facts and they do not set a mandatory rule that in all circumstances, an employee's job position need NOT be one that is temporary or finite in nature. The ATO view in MT 2030 which was prepared after these 2 decisions has too many references to temporary/finite positions to suggest otherwise.

Consequently, it would be difficult to accept that an employee is living away from home where both, the temporary position is relatively long AND the employee has not maintained a strong continuity of association with their former place of residence (i.e. the residence that is claimed to be their usual place of residence).

(b) It is important to establish that at the time the employee accepted the position that required the employee to live away from home, the employee did in fact have former place of residence and that in the relevant circumstances this residence is the employee's usual place of residence.

(c) The weighting given to the strength of the employee's continuity of association with the former place of residence is normally relatively high. The stronger this connection and the more often an employee returns to their former place of residence, (from the temporary place of residence), the greater the support to the view that the employee is living away from home. However, the Tax Office accepts that in certain situations, an employee is NOT required to establish a continuing connection with the usual place of residence to be considered living away from that usual place of residence. Where an employee's circumstances are considered to be similar to those covered in Paragraphs 30 to 34 of MT 2030, the weighting for this factor reduces substantially and it would not be necessary to consider (c)(i) to (iv) inclusive.

However, where the facts and circumstances of an employee can be distinguished from the examples given in paragraphs 30 to 34 of MT 2030, the need for an employee to establish strong connections with their usual place of residence becomes paramount. This is particularly so in situations where distance between the employee's temporary place of residence and their usual place of residence is relatively short and not an impediment that prevents the employee from using their usual place of residence on occasions when they are not on duty.

Further, as noted in case U110 87 ATC 663, it is important to keep in mind:

20. The purpose of the legislation, it has been said, is to compensate a person for being obliged to keep up two homes because of his employment. Here the applicant simply turned his former home into a revenue-earning asset, against which he claimed and was allowed appropriate deductions. He was not put to the expense of a dual establishment.

Whilst this is provided in the context of a different legislative provision than subsection 47(5) of the FBTAA, the principle that underlies the current accommodation concessions in the FBTAA is similar to the previous concessions in the ITAA 1936. That is, the view that an employee should not be obliged to keep up two homes (essentially from after-tax income) because of his or her employment.

In this regard, we need to consider very carefully whether an employee should be accepted as living away from home in situations that involve an employee either leasing out a former place of residence or terminating a lease in relation to a property, at or about the time they commence their employment duties and relocate to live at or near the temporary job location.

Similarly, the same caution applies to situations where employees who own or are buying their former place of residence. When an employee's circumstances do not fit within any of the examples covered in paragraphs 30 and 34 of MT 2030 and the employee chooses to lease the place of residence (that is claimed to be his or her usual place of residence) out to tenants for the duration of their temporary jobs, this undermines their argument that they are living away from home as for the duration of the employment, there will be a compelling argument that the employee is not living away from home as:

1. the employee does not have a place of residence other than the residence that is claimed to be the temporary place of residence, and

2. it is not in keeping with the principle that underlies the current accommodation concessions in the FBTAA. That is, the view that an employee should not be obliged to keep up two homes because of his or her employment.

(d) The intention or expectation of an employee to return to live at the former place of residence on cessation of work at the temporary locality is essential as it helps to distinguish living away from home situations from situations where an employee has permanently relocated their usual place of residence. However, it is not by any means determinative on its own.

38. The employee is considered to be living away from their usual place of residence for the purposes of subsection 47(5) of the FBTAA for the following reasons:

· The employer provides the employee with residential accommodation as the employee is required to live in the residential accommodation on the employer's premises and away from their usual place of residence, in order to perform the duties of its employment under the contract of employment. The employer requires the employee to live in accommodation on the employer's premises as the employee is required to be actively engaged in the management and care of employment duties.

· The employee's position requires the employee to reside at the employer's premises to be able to conduct their duties.

· There is sufficient connection with the employee's place of residence for that residence to constitute their usual place of residence.

· The employee resides at their property during part of the year.

· This residence contains most of the employee's furniture and effects.

· The employee intends to live in their property residence on cessation of work at the live-in position.

39. The accommodation provided to the employee is considered to be an exempt accommodation benefit under subsection 47(5) of the FBTAA. As the employee position does require the employee to live in a residence on the employer's grounds to enable the employee to perform their duties of employment and fulfil the employer's duty of care.

40. The accommodation is provided to the employee solely because the employee is required to live away from their usual place of residence and constitutes a residual benefit. Therefore subsection 47(5) of the FBTAA will apply to exempt the accommodation provided to the employee.

41. In this case the requirements of subsection 47(5) of the FBTAA are satisfied.

Conclusion

42. The accommodation provided by the employer to the employee will be treated as a living away from home, therefore will be exempt under subsection 47(5) of the FBTAA.

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