Edited version of your private ruling

Authorisation Number: 1012156954924

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Living Away From Home Allowance

Question

Is the allowance paid to your employee a living-away-from-home allowance benefit for the purposes of section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following periods:

Year ended 31 March 2012

Year ended 31 March 2013

The scheme commences on:

30 January 2012

Relevant facts and circumstances

The taxpayer is an employer.

The employer is based in Location A.

A new employee is employed by the taxpayer.

The employee is required to live in Location B during the employment period.

The employee made the decision to move away from their place of residence in Location B for the period of employment.

The employee has been residing in Location A.

The employee's place of residence in Location A will be rented out while they are working in Location B.

The employee's car will be transported to Location B.

The employee's furniture will be placed in storage while working in Location B.

The employee has a current driver's licence which they will maintain while working in Location B.

The employee is currently enrolled in Location A.

The employee will be renting a house in Location B.

The employee's family will be moving to Location B to live with them during the period.

The employee expects to return to Location A.

The taxpayer intends to pay the employee a living away from home allowance to cover additional food and accommodation costs incurred.

The employee will provide the taxpayer with an annual living-away-from-home allowance declaration in the required form and time frame.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 30.

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

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

Reasons for decision

Question

Is the allowance paid to your employee a living-away-from-home allowance benefit for the purposes of section 30 of the FBTAA?

Detailed reasoning

Subsection 136(1) of the FBTAA defines a living away from home allowance benefit as a benefit referred to in section 30 of the 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) of the FBTAA states:

Where:

(e) at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and

(f) 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.

An allowance will therefore be considered to be a living away-from-home allowance benefit if it satisfies all of the following criteria:

(a) the employer pays an allowance to the employee in respect of the employee's employment;

(b) the employee is required to live away from the employee's usual place of residence to perform the duties of that employment

(c) the allowance is paid to compensate the employee for non-deductible additional expenses incurred by the employee and other disadvantages to which the employee is subject by reason that the employee is required to live away from the employee's usual place of residence so as to be able to perform the duties of that employment.

(a) The employer pays an allowance to the employee in respect of the employee's employment

The FBTAA does not provide a definition of the term 'allowance'. However, paragraph 2 of Taxation Ruling TR 92/15, Income tax and fringe benefits tax: the difference between an allowance and a reimbursement provides the following guidance on the term's meaning:

A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance.

The employee will be paid a set amount of money in respect of accommodation and food regardless of whether they actually incur the expected expenses. Given this situation, it is determined that the payment the employer will be making to the employee will be an allowance.

One of the reasons the proposed allowance is being paid is to enable the recipient to live in accommodation in, or near, the area in which the recipient carries out there employment duties for the employer and therefore the proposed allowance is being paid in respect of the employment of the employee.

This criterion is satisfied.

(b) The employee is required to live away from the employee's usual place of residence as to be able to perform the duties of that employment

To satisfy this criterion, it will need to be determined that the employee is living away from his or her usual place of residence (that is, the employee is living away from home). It also needs to be determined that it is necessary for the employee to live away from home for the employee to perform the relevant employment duties.

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) 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 decisions 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 (AAT) 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 the present case, the employee's family will accompany the employee to Location B. While on its own, this does not support the view that the employee is living away from home, as would be the case had for example the family had not accompanied the employee and resided at their residence in Location A, it does not necessarily prevent a conclusion that the employee is required to live away from their usual place of abode in order to perform duties as an employee.

It is considered that the 12 months absence is a temporary period of a fixed maximum duration. Even though the spouse and kids will accompany the employee in Location B, this does not prevent a conclusion that the employee is required to live away from their usual place of abode in order to perform his duties as an employee. This view is supported by Case 106 12 CTBR (NS) 616 (Case 106) in paragraph 17 of MT 2030.

In Case 106, the taxpayer was an international pilot posted by his company to London by his employer for a period of two years. He was paid a 'station allowance' for which he claimed a deduction as a "living-away-from-home" allowance under section 51A of the ITAA 1936. The Taxation Board or Review allowed his objection, in part, as the Board found the allowance was in the nature of compensation to the pilot for the additional expenses incurred by him through having to live away from his usual place of abode.

The Board said (at p 618):

7. Here the taxpayer's overseas posting was for a temporary, even though substantial, period of fixed maximum duration. He left his home (his house) and his home town where he normally would have continued living if he had not to go abroad to perform his duties. As the evidence shows, he expected to return there to live. To that end he made provision for his return by letting his house for the maximum of his probable absence on the expiration fo which the tenant was to vacate. On these facts we think it is true to say that, even though he took his family with him, the taxpayer was required in terms of the definition 'to live away from his usual place of abode in order to perform his duties as an employee'. 'Abode', according to Wharton's Law Lexicon. 14^th ed., p6 seems larger and looser in its import that the word 'residence' which in strictness means the place where a man lives, i.e., where he sleeps or is at home. Hence, in our opinion, one cannot read 'place of abode' as meaning no more than a residence. It is not the use and existence of bricks and mortar that determines the application of the definition, so to construe it involves forcing the words 'usual place of abode' into an unduly restrictive mould.

The above case illustrates the following principles:

(i) each case must be decided on its own particular facts, and

(ii) the expression 'place of abode' has a wider meaning than 'place of residence'. The term 'abode' is not confined to the existence of an actual residence.

In considering the factors referred to by the AAT the following factors indicate that your employee's usual place of residence will be in their Location A residence:

· the employee owns a residence in Location A

· their furniture has been placed in storage in Location A while working in Location B

· the employee has maintained their Location A drivers licence and enrolment in the Location A electorate

· their employment with you is for a finite period, and

· the employee intends to return to their Location A residence at the termination of the employment contract with you.

Therefore, your employee will be considered to be living away from their usual place of residence.

Given the usual place of residence is in Location A and the employment duties will be performed in Location B it is accepted the employee is required to live away from their usual place of residence in order to perform the duties of employment.

This criterion is satisfied.

(c) The allowance is paid to compensate the employee for non-deductible additional expenses that the employee incurs or for both non-deductible additional expenses that the employee incurs and other disadvantages arising as a result of having to live away from home.

This criterion requires that the allowance be paid:

(i) to compensate the employee for either non-deductible additional expenses or for non-deductible additional expenses and other disadvantages during the relevant period; and

(ii) by reason the employee is required to live away from his or her usual place of residence to perform the duties of that employment.

You have stated that the proposed allowance will be paid to the employee to compensate the employee's additional food and accommodation expenses due to the employee living away from their usual place of residence in Location A to perform their duties of employment with the employer.

It is considered that it can be concluded from all surrounding circumstances that the proposed allowance is in the nature of compensation to the employee for additional expenses incurred (not being deductible expenses) because the employee is required to live away form their place or residence in order to perform their duties of employment.

This criterion is satisfied.

Conclusion

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

Income derived by an employee by way of the provision of a fringe benefit is non-assessable non-exempt income for income tax purposes as in accordance with subsection 23L(1) of the ITAA 1936.

This ruling is based on the living-away-from-home allowance provisions that are currently contained in sections 30 and 31 of the 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.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).