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Ruling

Subject: Fringe benefits tax Living-away-from-home allowance - Travelling allowance

Question 1

Is the meal and incidentals allowance paid to your employees who travel to perform their duties a living-away-from-home allowance (LAFHA) under section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 2

If the answer to question 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

Not applicable

This ruling applies for the following periods

Year ended 31 March 2008

Year ended 31 March 2009

Year ended 31 March 2010

Year ended 31 March 2011

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

The scheme commenced on

1 April 2007

Relevant facts

You are a government department with offices around Australia.

You send personnel from their current location to an area with a divisional office. These employees are filling vacant positions and performing their duties in a different location.

Air travel and accommodation are booked using a travel broker.

The employee is paid a travel allowance for meals and incidental items at the appropriate published rates. These rates form part of the enterprise agreement covering the employees.

You require your employees to perform duties away from their normal places of work. These areas may be separate from the normal place of employment and residence of your employees.

Key features to this arrangement include:

§ employees travel to a destination where accommodation is provided. This is usually a regional centre due to the availability of accommodation.

§ employees are required to travel from the accommodation to the specific locations where they are able to perform their duties whilst travelling

§ after completion of their duties each day the employees will usually return to their accommodation

§ during each period of travel the employee will perform their duties at a number of different locations

§ the period that an employee is required to travel in completing their election functions is often greater than 21 days, and sometimes for a period of up to 50 days

§ you pay your employees an allowance in line with rates which reflect the ATO travel allowance rates, as set out in Tax Determination TD 2009/15 for employees

§ at all times the employees maintain their usual place of residence

§ employees are not accompanied by any family members.

The duties carried on in regional and remote areas differ from those performed in their office of employment (usually a major city) as a result of the distances involved.

For those employees working in the city all the travel can be undertaken within the working day. Even where an employee lives in a neighbouring division they are still able to travel easily without having to seek accommodation.

In regional divisions, travel between divisions takes significant amount of time due to their nature and size. Travel within a regional division can be prohibitive, in that to inspect polling places in a regional area may require to "tour" the towns over a number of days to cover the whole area.

You provided Travel Allowance Rates.

Assumptions

Relevant legislative provisions

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)

Income Tax Assessment Act 1936 Section 900-30

Reasons for decision

Question 1

Is the meal and incidentals allowance paid to your employees who travel to perform their duties a living-away-from-home allowance (LAFHA) under section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Detailed reasoning

In general terms, most allowances are not subject to fringe benefits tax, but instead are taxed in accordance with the Income Tax Assessment Act. An exception to this general rule is a LAFHA which is taxed in accordance with the provisions of the FBTAA.

Subsection 30(1) of the FBTAA defines when an allowance will be taken to be a LAFHA for employees.  It 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 the allowance will be a LAFHA if the following conditions are met:

(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.

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

Although travel and accommodation are booked through a travel broker you pay your employees a daily meals and incidentals allowance.

In reviewing your arrangement it is accepted that the employee will incur additional food costs while they are performing electoral services in a location away from their normal work place.

Paragraph 30(1)(b)(i) will be satisfied if the food costs are not deductible expenses as the paragraph states:

it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for additional expenses (not being deductible expenses) incurred by the employee during a period;

Are the food costs 'deductible expenses'?

The term 'deductible expenses' is defined in subsection 136(1) to mean expenses incurred by the employee in respect of which a deduction is allowable to the employee under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

Guidance for determining whether the food expenses would be deductible expenses is provided by Taxation Determination TD 96/7 Fringe benefits tax: is fringe benefits tax (FBT) payable on meals and accommodation provided to employees who work at remote construction sites, where the accommodation is not the usual place of residence of the employee?

Paragraphs 3 and 4 of TD 96/7 state:

3. Where meals are provided, and it is concluded that the employee is travelling in the course of their employment, the taxable value of the benefit will be reduced to nil under the 'otherwise deductible' rule. The criteria for determining whether an employee is travelling in the course of performing their job are set out in paragraphs 35-43 of Taxation Ruling MT 2030. These criteria include:

• the nature of the duties performed;
• whether the employee is accompanied by dependants; and
• the length of time spent away from home.

As a practical general rule, where the question of whether or not the employee is travelling cannot easily be determined and the period away does not exceed 21 days, the employee may be accepted as travelling.

4. Guidance as to whether the 'otherwise deductible' rule will apply to reduce to nil the taxable value of meals provided to employees who are not travelling for work purposes is found in paragraph 5 of Taxation Ruling TD 93/230. Relevant factors to take into account include whether the employee:

• is required to live close by work;
• has a permanent residence away from the work site;
• lives away from home for a relatively short period of time; and
• has any choice as to the location of the accommodation provided.

Again, the 21 day period mentioned in paragraph 3 above will be accepted as a relatively short period of time for the purpose of these tests.

To illustrate these principles TD 96/7 provides the following two examples:

1. Allan works for a builder who has subcontracted work at a remote construction site in the Gulf Country. Allan stays at the site for 1 year but is flown home for two weeks every three months. Allan maintains a home in Townsville where his wife and family continue to live while he is away. All meals and accommodation at the site are provided by Allan's employer.

The taxable value of the accommodation is an exempt benefit under subsection 47(5). As the 'otherwise deductible' rule does not apply, the taxable value of each meal is $2.00.

2. Bill works for a builder who subcontracts only on remote construction sites throughout North Queensland. Bill and his family live in Cairns. While working on a three week contract at a construction site on Cape York Peninsula, Bill's employer, in accordance with his usual practice, flies Bill home on the two intervening weekends. All meals and accommodation at the site are provided by Bill's employer.

The taxable values of the meals and accommodation are reduced to nil under the applicable 'otherwise deductible' rules, as Bill would be accepted as travelling in the course of his employment.

Is the employee travelling?

As discussed in paragraph 3 of TD 96/7, the food costs incurred by the employee will be deductible expenses if the employee is travelling. Guidance for determining whether the employee is travelling in the course of his employment is provided by paragraphs 35 to 43 of MT 2030 Fringe benefits tax: Living-away-from-home allowance benefits. The paragraphs discuss three criteria which indicate the employee is travelling.

The first criterion which is the nature of the duties performed is discussed in paragraphs 37 and 38 of MT 2030 which state:

37. Unlike living-away-from-home allowances, there is generally no change of employment location in relation to the payment of travelling allowances. While the expenses that they are intended to compensate for may be similar - meals and accommodation, etc., - the circumstances in which the allowances are paid are essentially different.

38. A living-away-from-home allowance is paid where the employee has moved and taken up temporary residence away from his or her usual place of residence so as to be able to carry out employment duties for a time at the new (but temporary) workplace. A travelling allowance, on the other hand, is paid because the employee is travelling in the course of performing his or her job. In the former case, there is a change of job location and an actual change of residence to a place at or near that location. In the latter, the employee does not change job locations but simply travels in order to carry out the requirements of the job.

In applying these paragraphs to your situation, your employees employment location has not changed, they are required to travel for periods between 21 to 50 days then return to their place of employment. It is considered that the employees are undertaking employment duties at a location away from their employment location.

The second criterion is the length of time away from home which is discussed in paragraphs 39 and 40 of MT 2030 which state:

39. Travelling allowances are often paid for comparatively short periods, exceptions being allowances paid where the employment is inherently itinerant in nature or where travelling is a regular incident of the occupation, e.g., commercial travellers, travelling entertainers, etc. Academics studying on sabbatical leave have also been held to be travelling in the course of their employment rather than living away from home and thus could receive a travelling allowance over an extended period of time.

40. The nature of an allowance is not to be determined by reference solely to the period for which it is paid. As mentioned, a travelling allowance might be paid to a commercial traveller almost continuously throughout the year whereas another employee may receive a living-away-from-home allowance only for a month or so.

In your situation the allowance will be paid for the period that the employee is performing duties at another location for up to 50 days. However, as stated in paragraph 40 the nature of the allowance is not to be determined solely by reference to the period for which it is paid.

The third criterion discussed in paragraphs 42 and 43 of MT 2030 is whether the employee is accompanied by dependants. Paragraphs 42 and 43 of MT 2030 state:

42. An employee travelling in the course of employment ordinarily would not be accompanied by his or her spouse and family. On the other hand, it is more common for the spouse and children of an employee who has temporarily changed job locations and is living away from the usual place of residence to have his or her family living at the new location.

43. That is not to say that an unaccompanied employee should always be treated as travelling and an accompanied one regarded as living away from home. While those factors might be indicative of the nature of the employee's absence, the tests for determining the purpose of an allowance are as previously explained. To illustrate the point, an employee who lives during the working week in the country town where his permanent job is located but who travels perhaps several hundred kilometres to live during weekends with his wife and children in the family home located in another town would be, during the week, living away from home. So, too, would a married public servant based in a capital city who is seconded for six months to carry out a special task interstate in circumstances where his family stays behind in the family home. It is not where the family is that determines the nature of the allowance but where the employee is in relation to the usual place of residence and whether, on the facts, the employee can be said to be travelling on the job or living away from home.

You have advised that your employees are not accompanied by any family members.

Therefore, in applying the three criteria it can be concluded that your employees are travelling in the course of their employment duties.

As the employees are considered to be travelling in the course of their employment duties the food costs are considered to be deductible expenses.

(b) 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?

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:

14. 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 19 states:

19 An underlying theme of the cases 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. Correspondingly, 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. That would be the case notwithstanding that the new place of residence was a temporary one pending the obtaining of suitable long term accommodation.

Paragraph 20 provides the following general rule:

20. 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:

22. 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 your employees are not living away from their usual place of residence:

§ there is no change in employment location, the change is where the employment duties are performed

§ there is no choice between two residences

§ the period the employee is required to travel in performing their duties is between 21 and 50 days

§ the employee is not accompanied by any family members during this period, and

§ the employee returns to their former residence after their duties have ceased at the temporary location.

As the employees are not living away from their usual place of residence this criterion is not satisfied.

Therefore the meal and incidentals allowance is not a LAFHA.

Question 2

If the answer to question 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?

Detailed reasoning

Not applicable. The allowance is not a LAFHA

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