Edited version of your private ruling

Authorisation Number: 1012298400552

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

Will the allowance paid to you form part of your assessable income?

Answer

No

This ruling applies for the following period:

On or after 1 July 2012.

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.

You are working in Australia on a visa. The visa allows non-residents of Australia to work in Australia for a number of years.

Your family, your spouse and children reside, work and go to school in Overseas Country.

Your family live in the family home in Overseas Country which you own.

You live alone in furnished rental accommodation. The only asset you own in Australia is a second hand car.

During the year ended 30 June 2012 you received an allowance as compensation for the additional expenses incurred while working in Australia. Your employer treated this allowance as a living-away-from-home allowance.

You have applied for an employer sponsored subclass visa which, if accepted, will grant you permanent residency.

Although you have applied for a subclass visa you currently do not have plans to sell the home in Overseas Country and move your spouse and family to Australia.

Your current stated intention is to return to your home in Overseas Country at the completion of the employment agreement.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 30(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act 1936 Subsection 23L(1)

Income Tax Assessment Act 1997 Subsection 6-15(3)

Income Tax Assessment Act 1997 Section 6-23

Taxation Administration Act 1953 Subsection 12-1(2)

Taxation Administration Act 1953 Section 12-35

Reasons for decision

Will the allowance paid to you form part of your assessable income?

An allowance received by an employee will generally be included in the employee's assessable income under section 15-2 of the Income Tax Assessment Act 1997 (ITAA 1997). However, subsection 6-15(3) of the ITAA 1997 provides that an employee's assessable income will not include an amount that is 'non-assessable non-exempt income'.

Section 6-23 of the ITAA 1997 provides that an amount will be 'non-assessable non-exempt income' if a provision of the Income Tax Assessment Act states that it is not assessable income and is not exempt income.

Subsection 23L(1) of the Income Tax Assessment Act 1936 (ITAA 1936) states:

Income derived by a taxpayer by way of the provision of a fringe benefit is not assessable income and is not exempt income of the taxpayer.

Therefore, the allowance will not form part of your assessable income if it is a fringe benefit.

A fringe benefit is defined in subsection 136(1) of the FBTAA as follows:

"fringe benefit", in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit -

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax,

being a benefit provided to the employee or to an associate of the employee by -

(c) the employer; or

(d) an associate of the employer; or

(e) a person (in this paragraph referred to as the "arranger") other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of "arrangement" between -

(i) participates in or facilitates the provision or receipt of the benefit; or

(ii) participates in, facilitates or promotes a scheme or plan involving the provision of the benefit;

in respect of the employment of the employee but does not include -

a payment of salary or wages or a payment that would be salary or wages if salary or wages included exempt income for the purposes of the Income Tax Assessment Act 1936; or

(s)….

In considering this definition subsection 30(1) of the FBTAA provides that an allowance that satisfies the requirements of subsection 30(1) of the FBTAA will constitute a 'benefit' provided by the employer to the employee at that time.

The allowance will be paid to you by your employer under the terms of an agreement with your employer. Therefore, as the allowance is being paid as a result of your employment duties it will be a fringe benefit if it:

· comes within subsection 30(1) of the FBTAA; and

· is not a payment of salary or wages.

Will the allowance come within subsection 30(1) of the FBTAA?

Subsection 30(1) of the FBTAA 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 come within subsection 30(1) of the FBTAA if:

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

· 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.

(i) Is the allowance paid for additional non deductible expenses or other disadvantages incurred by the employee?

The allowance will be paid to compensate you for the accommodation expenses you are expected to incur whilst working in Australia. As these expenses are additional expenses for which you are not able to claim an income tax deduction this requirement is satisfied.

(ii) Do the additional expenses arise because you are required to live away from your 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 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 place at which the person resides; or

· 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:

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.

However, this is subject to paragraph 21 which states:

Some employees may be unable to establish that they are living away from their usual place of residence because the transitory nature of their lifestyle means that their usual place of residence is wherever they happen to sleep at night. Employees who follow the job, say, from construction site to construction site and have no permanent place of residence would fit into this particular category.

Further examples are provided in paragraph 25 which states:

… certain kinds of occupations have a career structure which brings with it the necessity to accept regular transfers from one location to another, e.g., police officers, school teachers, members of the defence force, bank employees, etc. Employees in these situations will generally not be treated as living away from home when they move on transfer to live in proximity to the current work place. That will be the case even if the employee owns a home elsewhere in which he or she eventually intends to reside.

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 Case B47, 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 usual place of residence is overseaas:

· you are maintaining a home in Overseas Country;

· your family lives in the home;

· even though you have applied for permanent residency under a visa, at this stage it has not been received and so you currently remain on a temporary visa;

· at this stage you have an intention to return to live with your family in Overseas Country; and

· you have no family ties in Australia and your only asset in Australia is a second hand car.

Support for this conclusion is provided by Member Roach who in Case R99 84 ATC 650 at ATC 657 said:

Everyone has a place of abode. If a person has only one place of abode then that place is his "usual place of abode". Some persons have more than one place of abode in which case the question can be asked, which of those places of abode is his or her "usual place of abode".

In the case of a married man with a family who is temporarily absent from the family home, albeit for a prolonged period, it is relatively easy to conclude that his "usual" place of abode is the family home so long as it is his intention to return there.

This describes your situation as you are married with a family in Overseas Country. Therefore, so long as you can be seen to have an intention to return to that home it can be accepted that you are living away from that home.

Given your usual place of residence is in Overseas Country and your employment duties are being performed in Australia it is accepted that you are required to live away from your usual place of residence in order to perform your duties of employment.

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

However, it should be noted that this outcome may change if you are successful in obtaining a visa. In addition, the taxation treatment after the period may be affected by the amendments contained in Tax Laws Amendment (2012 Measures No. 4) Bill 2012.

Is the allowance a payment of salary or wages?

Salary or wages is defined in subsection 136(1) of the FBTAA as:

"salary or wages" means:

(a) a payment from which an amount must be withheld (even if the amount is not withheld) under a provision in Schedule 1 to the Taxation Administration Act 1953 listed in the table, to the extent that the payment is assessable income; …

Section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA) states that:

An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

It is accepted that you are an employee whose employer is required to withhold from amounts it pays to you as salary and wages.

Subsection 12-1(2) of the TAA states that:

In working out how much to withhold under section 12-35, 12-40, 12-45, 12-47, 12-115, 12-120, 12-315 or 12-317 from a payment, disregard so much of the payment as is a living-away-from-home allowance benefit as defined by section 136 of the Fringe Benefits Tax Assessment Act 1986.

Subsection 136(1) of the FBTAA defines a living-away-from-home allowance fringe benefit and a living-away-from-home allowance benefit as:

· "living-away-from-home allowance fringe benefit" means a fringe benefit that is living-away-from-allowance benefit;

· "living-away-from-home allowance benefit" means a benefit referred to in section 30.

As the allowance is a living-away-from-home allowance it will not be subject to PAYG and therefore will not be a payment of salary or wages.

As it is not a payment of salary or wages, all of the requirements of the fringe benefit definition are met. Therefore, in accordance with subsection 23L(1) of the ITAA 1936 the allowance is not assessable income and is not exempt income.

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).