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Ruling

Subject: Living-Away-From-Home Allowance

Question 1

Will the allowance paid to your employee be a Living-away-from-home allowance (LAFHA) benefit pursuant to subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 ?

Answer

Yes.

Question 2

If the answer to question 1 is yes, will the taxable value of the LAFHA be reduced by the exempt food and exempt accommodation components?

Answer

Yes.

This ruling applies for the following periods

1 April 2011 to 31 March 2012

1 April 2012 to 31 March 2013

1 April 2013 to 31 March 2014

1 April 2014 to 31 March 2015

1 April 2015 to 31 March 2016

This ruling is based on the living-away-from-home allowance provisions that are currently contained in sections 30 and 31 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

As part of the Mid-Year Economic and Fiscal Outlook 2011-12, the Treasurer announced that the government will introduce reforms to the living-away-from-home allowance and benefits provisions. If enacted, these proposed reforms will apply from 1 July 2012.

You should note that if the law has been substantively changed, the part of the private ruling dealing with the changed law ceases to apply.

More information regarding the proposed reforms is available in:

The Treasurer's Media Release No. 148 of 2011, 'Tax Measures in Mid-Year Economic and Fiscal Outlook', 29 November 2011; and

The Consultation Paper titled 'Fringe Benefits Tax (FBT) Reform Living-away-from-home benefits', 29 November 2011.

The scheme commenced on

1 April 2011

Relevant facts and circumstances

Your employee arrived in Australia on a 457 visa in 2007.

Your employee was employed on a contract for four years. This was renewed for a further four years. The employee is currently employed in Australia on a fixed term contract. You are seeking to extend the employee's services for a further one year.

Your employee is a citizen of Country X who came to Australia with their family.

Your employee's family includes two adults and two children.

Your employee and their family all intend to return to their usual place of residence in Country X at the conclusion of the contract of employment.

Your employee owns and maintains their home in Country X which is currently being rented.

Your employee has stored personal effects at their parent's home which they will collect when they returns.

Your employee holds bank accounts in Country X.

Your employee maintains close ties with their parents, parents-in-law and siblings in Country X.

Your employee and their family have resided in the same rented dwelling for a number of years.

Your employee's employment contract states that they and their family will return to Country X at the end of the tenure at your expense.

Your employee is listed on the electoral roll of Country X and continues to vote in their government elections.

Your employee's employment contract has been extended and provides for a LAFHA with a food component and an accommodation component.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act (1986) section 31

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

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

Question 1

Will the allowance paid to your employee be a LAFHA benefit pursuant to subsection 30(1) of the FBTAA?

Reasons for decision

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 their 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:

(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.

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 their 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 their 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) 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.

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 their 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 they 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 their 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 they or she faces in that period but only if the expenses are incurred because they or she is required to live away from their 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 their 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 they 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 their 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 they 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 employee is living away from their usual place of residence:

· your employee is in Australia on a 457 temporary resident visa

· your employee owns and maintains their home in Country X

· your employee is listed on the electoral roll of Country X and continues to vote in their government elections

· your employee has retained family and economic ties in Country X, and

· your employee has a stated intention to return to live in Country X at the conclusion of the 457 visa.

Therefore, as the usual place of residence is in Country X and the employment location is in Australia, it is accepted that the expenses arise as a result of the employee being required to live away from their usual place of residence in order to perform their duties of employment.

Conclusion

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

Question 2

If the answer to question 1 is yes, will the taxable value of the LAFHA be reduced by the exempt food and exempt accommodation components?

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 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 they 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.

Conclusion

If the employee provides a declaration the taxable value of the LAFHA will be reduced by the exempt accommodation and food components.

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