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Ruling

Subject: Fringe Benefits Tax - living away from home allowance.

Question 1

For the purposes of section 31 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) will the transitional rules apply in respect of the employee?

Answer

Yes

Question 2

For the period X to Y can the Company reduce the taxable value of the living away from home allowance to NIL pursuant to section 31 of the FBTAA?

Answer

Yes

This ruling applies for the following period:

X to Y

The scheme commenced during:

The relevant year

Relevant facts and circumstances

The employer has been paying one of its employees, a living away from home allowance since 20ZZ

The employee was born in Australia and raised overseas in Country A, where they spent most of their life.

The employee has a normal residence in Country A.

The employee is single.

The employee is employed by the employer for a period of X years commencing in 20ZZ.

The employee plans to return to Country A after their employment contract ceases.

The employee maintains a home in Country A for their immediate use upon their return.

The employee maintains personal effects (bank accounts, investments and furniture) in Country A.

Under an employment arrangement the employer has been paying the employee an allowance which consists of both:

- food component consistent with the Commissioner's annual Taxation Determination relating to the relevant period..

- a reasonable accommodation component.

to compensate the employee for additional expenses (not being deductible expenses) incurred by the employee or additional expenses (not being deductible expenses) incurred by the employee and other additional disadvantages. These expenses and disadvantages are 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 employment arrangement was not materially varied.

The employee is renting an apartment for their immediate use and has been since arriving in Australia. Other than this apartment the employee does not maintain another home in Australia.

The employee has provided a living away from home declaration to the employer as required 

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986, Section 30

Fringe Benefits Tax Assessment Act 1986, Section 31

Fringe Benefits Tax Assessment Act 1986, Section 31C

Fringe Benefits Tax Assessment Act 1986, Section 31C(a)

Fringe Benefits Tax Assessment Act 1986, Section 31D

Fringe Benefits Tax Assessment Act 1986, Subsection 31D(1)

Income Tax Assessment Act 1936 Section 6(1)A

Tax Laws Amendment (2012 Measures No. 4) Act 2012, Part 3 Sched 1 Section 27

Issue 1

Detailed reasoning:

Under the new rules, the taxable value of a LAFHA can be calculated under section 31 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) where the employee satisfies section 31C (about maintaining a home in Australia), 31D (about the first 12 months) and 31F (about declarations).

Paragraph 31C is satisfied if:

(a) the place in Australia where the employee usually resides when in Australia:

(i) is a unit of accommodation in which the employee or the employee's spouse has an ownership interest (within the meaning of the Income Tax Assessment Act 1997); and

(ii) continues to be available for the employee's immediate use and enjoyment during the period that the duties of that employment require the employee to live away from it;

According to subsection 31D(1), the employee satisfies section 31D if:

…the fringe benefit relates only to all or part of the first 12 months that the duties of that employment require the employee to live away from the place in Australia where he or she usually resides when in Australia.

The new rules apply generally to employees who are living away from their normal residence on or after 1 October 2012 in respect of all allowances and benefits provided in relation to the periods commencing on or after 1 October 2012.

Paragraph 1.62 of the Explanatory Memorandum to the Tax Laws Amendment (2012 Measures No. 4) Act 2012 (EM) states that the transitional rules apply to:

· Employees who are permanent residents with employment arrangements in place prior to 7:30pm (AEST) on 8 May 2012 (Budget time); and

· The employment arrangement was not materially varied or renewed between Budget time and 1 October 2012.

The legislation for the transitional arrangements is in Part 3 of Schedule 1 to the Tax Laws Amendment (2012 Measures No. 4) Act 2012. Specifically, subsection 27(1) of that Part states that:

(1) During the transitional period, disregard paragraph 31C(a) and section 31D of the Fringe Benefits Tax Assessment Act 1986 if:

(a) the employee is neither a temporary resident nor a foreign resident; and

(b) during the entire period:

(i) starting at the Budget time; and

(ii) ending on 30 September 2012;

that employment was covered by an eligible employment arrangement that was neither varied in a material way nor renewed.

The transitional period means the period:

(a) starting on 1 October 2012; and

(b) ending at the earliest of:

(i) 30 June 2014; and

(ii) The time the eligible employment arrangement referred to in paragraph (1)(a) or (2)(b) ends; and

(iii) The first time that eligible employment arrangement is varied in a material way or renewed.

Further, and in accordance with subsection 27(2) in Part 3 of Schedule 1 to the Tax Laws Amendment (2012 Measures No. 4) Act 2012, an employer may not disregard paragraph 31C(a) during the transitional period if the employee is either a 'temporary resident' or 'foreign resident'. Both of these terms are defined in the Tax Laws Amendment (2012 Measures No. 4) Act 2012.

The EM uses the terminology 'permanent resident' but the amending legislation does not.

'temporary resident' and 'foreign resident' have the same meaning as in the Income Tax Assessment Act 1997.

As defined in the ITAA 1997 you are a temporary resident if:

(a) you hold a temporary visa granted under the Migration Act 1958; and

(b) you are not an Australian resident within the meaning of the Social Security Act 1991; and

(c) your spouse is not an Australian resident within the meaning of the Social Security Act 1991.

However you are not a temporary resident if you have been an Australian resident (within the meaning of this Act), and any of paragraphs (a), (b) and (c) are not satisfied, at any time after the commencement of this definition.

The employee is an Australian citizen so clearly he is not a temporary resident as defined.

A foreign resident is defined as:

…a person who is not a resident of Australia for the purposes of the Income Tax Assessment Act 1936.

In relation to an individual, the ITAA 1936 defines a resident as:

(a) a person, other than a company, who resides in Australia and includes a person:

(i) whose domicile is in Australia, unless the Commissioner is satisfied that the person's permanent place of abode is outside Australia;

(ii) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that the person's usual place of abode is outside of Australia and that person does not intent to take up residence in Australia; or

(iii) who is:

(A) a member of the superannuation scheme established by deed under the Superannuation Act 1990; or

(B) an eligible employee for the purposes of the Superannuation Act 1976; or

(C) the spouse, or a child under 16, of a person covered by sub-subparagraph (A) or (B); …

Taxation Ruling TR 98/17 provides guidance on the residency status of individuals entering Australia. Referring to the definition in subsection 6(1) paragraph 32 states that:

The definition has four tests for determining whether an individual is a resident for tax purposes. These tests are:

(1) residence according to ordinary concepts;

(2) the domicile and permanent place of abode test;

(3) the 183 day test; and

(4) the Commonwealth superannuation fund test.

Paragraph 33 goes on to say that:

The definition states that a resident means a person who resides in Australia. If they reside here under ordinary concepts, residency status is established and the other three tests in the subsection 6(1) definition need not be considered. These other tests extend the meaning of 'resident' to individuals who may not reside in Australia: Applegate.

There are various indicators to be considered when determining whether an individual resides in Australia under ordinary concepts. Paragraph 43 notes that:

Where the day to day behaviour of individuals, considered over time, is relatively similar to their behaviour before entering Australia, they are likely to be regarded as residing here. Even when their behaviour over time is different from their behaviour before entering Australia, they are likely to be regarded as residing here, when the facts of their presence indicate a routine establishing that they are living in Australia.

Further, paragraphs 44 to 46 go on to say:

Many individuals work in a number of countries during their careers. They often maintain a house in their country of domicile. However, for the period of their assignment in Australia, they live and work here. Their family often accompany them, their children attend school here and they may become involved in social activities while present in Australia.

Although these individuals regard themselves as permanently resident in their home country and/or may be regarded as residents of their home country for its tax purposes, their behaviour while temporarily in Australia may mean they are also residing here for Australian tax purposes.

All the facts and circumstances that describe an individual's behaviour in Australia are relevant.

Indicators that should be considered are:

· Intention or purpose of presence: a settled purpose such as employment or education may support an intention to reside in Australia. However, the intention must be more than merely being a traveller or visitor who may supplement their savings by obtaining casual employment.

· Family and business/employment ties: an individual who enters Australia to take up an employment contract usually establishes or maintains behaviour that may indicate the individual is residing here.

· Maintenance and location of assets

· Social and living arrangements

Time is not necessarily determinative of residency but it is an important factor when considering whether an individual resides here.

Therefore if the employee is a resident of Australia in accordance with the definition in subsection 6(1) of the ITAA 1936, he is not a foreign resident.

The effect of the above discussion as relevant to this private ruling is that if all the other requirements of section 27 are satisfied, then for the transitional period the employer may disregard paragraph 31C(a) and section 31D of the FBTAA until 30 June 2014.

Based on the relevant facts for this ruling and taking into account the assumptions made, we have determined that:

1. For the purposes of section 31 of the FBTAA, the transitional rules do apply in respect of the employee.

2. The employee is not a temporary resident or foreign resident for taxation purposes. They are an Australian resident as their behaviour during the period they are in Australia reflects a degree of continuity, routine or habit that is consistent with residing in Australia.

3. The requirements of paragraph 31C(a) and section 31D of the FBTAA are satisfied.

Consequently, for the transitional period the employer may disregard paragraph 31C(a) and section 31D of the FBTAA until 30June 2014. The employer will be able to calculate the taxable value of the LAFHA under section 31 of the FBTAA (and reduce the amount of the fringe benefits by any exempt accommodation component and any exempt food component).

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