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Ruling

Subject: Income Tax - Travel Allowance and Fringe Benefits Tax - Living Away From Home Allowance (LAFHA)

Question 1

Is the allowance paid to your company representative, a travel allowance, and therefore deductible under section 8(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

Question 2

If the answer to Question 1 is no, should the paid allowance be classified as a living-away-from-home-allowance benefit pursuant to subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Not applicable due to the answer to Question 1 being yes.

This ruling applies for the following periods:

For the year ending 30 June 2012

For the year ending 30 June 2013

For the year ending 30 June 2014

For the year ending 30 June 2015

The scheme commenced on:

1 January 2012

Relevant facts and circumstances

Your company representative (your employee) is employed on a full-time basis to visit your clients all over Australia and to promote your company's products.

Your employee spends a large amount of time in the eastern states.

The area for your employee to visit is set by the Administration Manager. The employee travels to that area to carry out their duties of employment.

Your employee may spend between one day and several weeks in each area depending on how many clients your company has in that area.

Whilst staying in an area for a number of days, your employee may see half a dozen or so clients depending on who is at home at the time of their visit. Your employee goes to your clients, they do not come to your employee.

A variety of accommodation is used on these trips, from hotels, motels, cabins, apartments etc, dependent upon what is available in each area.

You pay your employee an amount for accommodation and food. These rates were agreed as being fair amounts between your company and your employee, for the areas that your employee would be visiting.

The ATO rates were looked at but considered too excessive for the amount of travel to be done and the accommodation costs in the places to be visited. It was also taken into account in the decision on allowance amounts, the amount of your employee's salary.

A fully maintained company vehicle is provided to your employee for travelling the eastern states. Your employee carries some bulky equipment in that vehicle.

Your employee has a permanent home in City A which is shared with their spouse and family.

There is no City A office of your company, and therefore, when in City A, your employee's work is based out of their family home. They do not carry the same bulky equipment around with them when in City A.

Your employee can be away from their home for months at a time and will usually stay in many different places within this time. Your employee always travels alone; they are not accompanied by their spouse or family.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8(1),

Income Tax Assessment Act 1997 Section 15(2),

Income Tax Assessment Act 1997 Subdivision 900-B and

Fringe Benefits Tax Assessment Act 1986 Subsection 30(1).

Reasons for decision

Question 1

Summary

The allowance paid to your employee is a travel allowance and therefore is deductible under section 8(1) of the ITAA 1997.

Detailed reasoning

Miscellaneous Tax Ruling MT 2030: Fringe benefits tax: living-away-from-home allowance benefits (MT 2030) outlines the distinction between a travelling allowance and a living-away-from-home allowance.

Such a distinction is important due to the different taxation treatments. Living-away-from-home allowances are taxable fringe benefits under section 31 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), whereas travelling allowances form part of the employee's assessable income against which appropriate deductions may be allowed for the cost of meals, accommodation and incidental expenses incurred while the employee is travelling in the course of carrying out the duties of employment.

Paragraphs 38 and 39 of MT 2030, discuss this distinction:

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.

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, eg. commercial travellers, travelling entertainers etc.

Your employee falls under the category of simply travelling in order to carry out the requirements of their job and for this reason the allowance paid to them is considered a travel allowance rather than a LAFHA. This is the case even though your employee can be away from home for considerably longer periods than the comparatively short periods that a travel allowance generally refers to. As discussed in the paragraph above this exception is expected where employment is inherently itinerant in nature or where travelling is a regular incident of the occupation, as with your employee's role.

Taxation Ruling TR 95/34 Income tax: employees carrying out itinerant work - deductions, allowances and reimbursements for transport expenses (TR 95/34): provides guidelines for establishing whether an employee is carrying out itinerant work. The characteristics that have emerged from cases as being indicators of itinerancy are:

· travel is a fundamental part of the employee's work;

· the existence of a 'web' of work places in the employee's regular employment, that is, the employee has no fixed place of work;

· the employee continually travels from one work site to another. An employee must regularly work at more than one work site before returning to his or her usual place of residence;

· other factors that may indicate itinerancy (to a lesser degree) include:

o the employee has a degree of uncertainty of location in his or her employment (that is, no long term plan and no regular pattern exists);

o the employee's home constitutes a base of operations;

o the employee has to carry bulky equipment from home to different work sites;

o the employer provides an allowance in recognition of the employee's need to travel continually between different work sites.

No single characteristic on its own is necessarily decisive and the question of whether an employee's work is itinerant in nature is one of fact. When examining the factors in the case of your employee's work, the following characteristics are present in their circumstances:

· travel is a fundamental part of the work;

· a 'web' of work places exists for your employee;

· your employee's work involves continuous travel from one location to another;

· your employee often cannot be certain of the location of their work sites;

· when in City A your employee's work is based out of their family home;

· your employee carries some bulky equipment in the vehicle provided by your company; and

· an allowance is provided by your company to your employee in recognition of the need to travel continually between different work sites for the purpose of food and accommodation during these visits.

The above characteristics indicate that your employee's work is itinerant in nature.

Therefore, the allowance paid to your employee is a travelling allowance (a component of salary and wages expense) and would be an allowable deduction under section 8(1) of the ITAA 1997.

Question 2

Not addressed due to being not applicable with the answer to Question 1 being yes.

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