Edited version of your private ruling

Authorisation Number: 1012378815891

Ruling

Subject: Fringe benefits tax - living-away-from-home and residency status

Question 1

Can the taxable value of the living-away-from-home allowance provided to your employee be calculated in accordance with subsection 31(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

This ruling applies for the following period:

1 October 2012 to 1 July 2014

The scheme commences on:

In the 2012 fringe benefits tax year

Relevant facts and circumstances

Your employee moved to Australia from an overseas location during the relevant fringe benefits tax (FBT) year, sponsored on a Temporary Business (Long Stay) - Standard Business Sponsorship (Subclass 457) visa ('457 visa').

Your employee moved to Australia with their spouse.

Your employee's spouse is an Australian citizen.

Your employee moved to Australia to commence short-term employment for you.

Your employee and their spouse intend to return to their home in the overseas location at the conclusion of your employee's employment with you.

Your employee and their spouse live in a flat that they rent in Australia.

Your employee's remuneration package includes a living-away-from-home allowance which has been in place since the commencement of their employment with you in the relevant FBT year.

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 section 31

Fringe Benefits Tax Assessment Act 1986 subsection 31(2)

Tax Laws Amendment (2012 Measures No. 4) Act 2012 section 26

Tax Laws Amendment (2012 Measures No. 4) Act 2012 section 27

Tax Laws Amendment (2012 Measures No. 4) Act 2012 subsection 27(3)

Income Tax Assessment Act 1997 subsection 995-1(1)

Income Tax Assessment Act 1936 section 6

Social Security Act 1991 subsection 5(8)

Social Security Act 1991 subsection 7(2)

Social Security Act 1991 subsection 7(3)

Reasons for decision

Can the taxable value of the living-away-from-home allowance provided to your employee be calculated in accordance with subsection 31(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

You have provided a living-away-from-home allowance in accordance with the requirements of subsection 30(1).

The taxable value of a living-away-from home allowance is calculated in accordance with section 31 of the FBTAA as follows:

SECTION 31 TAXABLE VALUE - EMPLOYEE MAINTAINS A HOME IN AUSTRALIA

31(1)

This section applies to a living-away-from-home allowance fringe benefit covered by subsection 30(1) in relation to a year of tax to the extent that the employee satisfies all of the following for the fringe benefit and the period to which it relates:

a) section 31C (about maintaining an Australian home);

b) section 31D (about the first 12 months);

c) section 31F (about declarations).

31(2)

Subject to this Part, the taxable value of the fringe benefit in relation to the year of tax is the amount of the fringe benefit reduced by:

a) any exempt accommodation component; and

b) any exempt food component.

…

SECTION 31B TAXABLE VALUE-ANY OTHER CASE

31B(1)

This section applies to a living-away-from-home allowance fringe benefit in relation to a year of tax to the extent that neither section 31 nor 31A applies to the fringe benefit and the period to which it relates.

31B(2)

Subject to this Part, the taxable value of the fringe benefit in relation to the year of tax is the amount of the fringe benefit.

SECTION 31C

31C MAINTAINING A HOME IN AUSTRALIA

The employee satisfies this section 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; and

b) it is reasonable to expect that the employee will resume living at that place when that period ends.

SECTION 31D FIRST 12 MONTHS EMPLOYEE IS REQUIRED TO LIVE AWAY FROM HOME

31D(1)

The employee satisfies this section 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.

…

SECTION 31F DECLARATIONS

31F(1)

The employee satisfies this section if the employee gives the employer a declaration, in a form approved by the Commissioner, purporting to set out:

(a) for a fringe benefit to which section 31 (about employees who maintain an Australian home) applies:

i. the address of the place in Australia where the employee usually resides when in Australia; and

ii. that section 31C is satisfied for that place; and

iii. the address of each place where the employee actually resided during the period to which the benefit relates; or

….

31F(2)

The employee must give the employer the declaration before the declaration date for the year of tax during which the benefit was provided.

In summarising, section 31 provides that the taxable value of a living-away-from-home allowance for non fly-in fly-out or drive-in drive-out employees is calculated as follows:

1. if the conditions set out in the following sections are all satisfied,

· section 31C (about maintaining an Australian home)

· section 31D (about the first 12 months)

· section 31F (about declarations)

then the taxable value is the amount of the fringe benefit reduced by any exempt accommodation or exempt food component (subsection 31(2))

2. in any other case (where one or more of the conditions contained in section 31C, section 31D and section 31F are not satisfied), the taxable value is the amount of the fringe benefit and is not subject to any reductions (subsection 31B(2))

Can the taxable value of the living-away-from-home allowance provided to your employee be calculated in accordance with subsection 31(2)?

Transitional provisions contained in the Tax Laws Amendment (2012 Measures No. 4) Act 2012 ('the transitional provisions') apply to affect the application of subsection 31(2) of the FBTAA as follows:

Part 3-Application and transitional provisions

26 Application of amendments

The amendments made by this Schedule apply in relation to an employee who, on or after 1 October 2012, lives away from his or her normal residence (whether a benefit provided for living away from that residence on or after that day was paid before, on or after that day).

27 Transitional-existing employment arrangements

(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.

(2) During the transitional period, disregard section 31D of the Fringe Benefits Tax Assessment Act 1986 if:

(a) the employee is a temporary resident or 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.

In summarising, the transitional provisions allow section 31(2) of the FBTAA to be used, during the transitional period, to calculate the taxable value of the benefit if the following conditions are satisfied:

1) on or after 1 October 2012 the employee lives away from their normal residence (whether a benefit provided for living away from that residence on or after that day was paid before, on or after that day)

2) during the transitional period the employee is not a foreign resident

3) during the transitional period the employee is not a temporary resident

4) during the period from Budget time to 30 September 2012 the employment was covered by an eligible employment arrangement that was neither materially varied nor renewed.

1. Did the employee live away from their normal residence on or after 1 October 2012 (whether a benefit provided for living away from that residence on or after that day was paid before, on or after that day)?

You have stated that the employee is currently living away from their normal residence in the overseas location and has been since a date prior to 1 October 2012. The employee has been receiving a living-away-from-home allowance since the commencement of their employment which was prior to 1 October 2012.

2. During the transitional period was the employee not a foreign resident?

Not a foreign resident

The transitional provisions define what it means to be a 'foreign resident' for the purposes of applying the transitional provisions.

Subsection 27(3) of the transitional provisions states:

In this item:

…

foreign resident has the same meaning as in the Income Tax Assessment Act 1997.

…

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides the following definition of a 'foreign resident':

995-1(1) In this Act, except so far as the contrary intention appears:

...

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

A resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936) is defined in section 6 of the ITAA 1936 as follows:

Resident or resident of Australia means:

(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 Australia and that the person does not intend 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-paragraph (A) or (B); and

….

Therefore, if your employee is a 'resident of Australia' within the meaning provided by section 6 of the ITAA 1936, they will be considered to be 'not a foreign resident' for the purposes of the transitional provisions.

The definition in section 6 of the ITAA 1936 states that a resident of Australia is a person who 'resides in Australia'. The definition then provides other tests that can be used to determine if a person is a resident of Australia.

The term 'resides' in the context of being a person who 'resides in Australia', is not defined in the ITAA 1936. Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia (TR 98/17) provides guidance on interpreting the definition of 'resident or resident of Australia' in the ITAA 1936 and, in particular, on interpreting the ordinary meaning of the word 'resides' within the definition.

TR 98/17 explains the tests provided by the definition in paragraphs 32 to 33 as follows:

32. 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.

33. 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: Appelgate.

…

Thus, the primary test for determining an individuals residency status is whether the individual resides in Australia according to the ordinary meaning of the word 'resides'.

In reference to the ordinary meaning of the word 'resides', paragraphs 13 to 18 of TR 98/17 provides the following by way of general guidance:

13. As there is no definition of the word 'reside' in Australian income tax law, the ordinary meaning of the word needs to be ascertained from a dictionary.

14. For example, The Macquarie Dictionary defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time' and the Shorter Oxford English Dictionary defines it as 'to dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place'.

15. The ordinary meaning of the word 'reside' is wide enough to encompass an individual who comes to Australia permanently (e.g., a migrant) and an individual who is dwelling here for a considerable time.

16. A migrant who comes to Australia intending to reside here permanently is a resident from arrival.

17. When an individual arrives in Australia not intending to reside here permanently all the facts about his or her presence must be considered in determining residency status.

18. The period of physical presence or length of time in Australia is not, by itself, decisive when determining whether an individual resides here. However, an individual's behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here.

Paragraphs 19 to 28 and 42 to 63 of TR 98/17 discuss the factors that should be considered when determining whether an individual resides in Australia in accordance with the ordinary concepts test. The considerations discussed are:

· the quality and character of an individual's behaviour while in Australia, and

· the period of physical presence in Australia

In regards to the first consideration listed, the following factors are described as useful in determining the quality and character of an individual's behaviour:

· main intention or purpose for being in Australia

· presence of family and business or employment ties

· maintenance and location of assets

· social and living arrangements

When your employee commenced work with you they completed a Tax file number declaration form (NAT 3092-09.2012). You have advised that in section A your employee answered 'yes' in response to question 7, 'Are you an Australian resident for tax purposes?'. The instructions for completing the Tax file number declaration form provide guidance about how to determine if you are an Australian resident for tax purposes, based on the tests contained in the ITAA 1936 definition and discussed in TR 98/17. The instructions also instruct the reader to visit www.ato.gov.au/residency or to phone the Australian Tax Office for further information and to check their Australian residency status for tax purposes. The website provides further information about each of the four tests contained in the definition and an interactive tool to check residency status according to the ITAA 1936 definition.

As your employee has completed and signed the Tax file number declaration form stating that they are an Australian resident for tax purposes, we accept that your employee is an Australian resident in accordance with the meaning provided by section 6 of the ITAA 1936. Thus we accept that your employee is 'not a foreign resident' for the purposes of the transitional provisions.

Not a foreign resident during the transitional period

Subsection 27(3) of the transitional provisions defines the transitional period as follows:

In this item:

…

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)(b) or (2)(b) ends; and

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

Your employee commenced employment with you prior to 1 October 2012, completing their Tax file number declaration form at the commencement of their employment. Thus we accept that your employee was an Australian resident at the commencement of the transitional period and will remain so until the transitional period ends in accordance with paragraph 27(3) of the transitional provisions or until your employee's residency status changes.

3. During the transitional period was the employee not a temporary resident?

Not a temporary resident

The transitional provisions provide define what it means to be a 'temporary resident' for the purposes of applying the transitional provisions.

Subsection 27(3) of the transitional provisions states:

In this item:

…

temporary resident has the same meaning as in the Income Tax Assessment Act 1997.

…

Subsection 995-1(1) of the ITAA 1997 provides the following definition of a 'temporary resident':

995-1(1) In this Act, except so far as the contrary intention appears:

temporary resident: 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 the paragraphs (a), (b) and (c) are not satisfied, at any time after the commencement of this definition.

Note: The tests in paragraphs (b) and (c) are applied to ensure that holders of temporary visas who nonetheless have a significant connection with Australia are not treated as temporary residents for the purposes of this Act.

In summarising, your employee will not be a temporary resident for the purposes of the transitional provisions if the following conditions are satisfied:

(a) your employee has been an Australian resident, within the meaning of the ITAA 1997,

and

(b) at least one of the following requirements is not satisfied:

· your employee's spouse is not an Australian resident within the meaning of the Social Security Act 1991

· your employee is not an Australian resident within the meaning of the Social Security Act 1991

· your employee holds a temporary visa granted under the Migration Act 1958

In regards to condition (a), of being an Australian resident for the purposes of the ITAA 1997, the ITAA 1997 provides the following definition referring to the ITAA 1936:

995-1(1) In this Act, except so far as the contrary intention appears:

Australian resident means a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936.

As established in answering question two above, 'during the transitional period was the employee not a foreign resident?', we consider that your employee is currently a resident of Australia for the purposes of the ITAA 1936. Therefore this requirement is satisfied.

One of the ways that condition (b) will be satisfied is if your employee's spouse is an Australian Resident within the meaning of the Social Security Act 1991.

An 'Australian resident' for the purposes of the Social Security Act 1991 is defined in subsection 7(2) of the Social Security Act 1991 as follows:

7(2) An Australian resident is a person who:

(a) resides in Australia; and

(b) is one of the following:

(i) an Australian citizen;

(ii) the holder of a permanent visa;

(iii) a special category visa holder who is a protected SCV holder.

Thus in order for your employees spouse to be considered an 'Australian resident' for the purposes of the Social security Act 1991, they must:

· be one of the following

o an Australian citizen

o the holder of a permanent visa

o a special category visa holder who is a protected SCV holder

and

· reside in Australia

You have stated that your employee's spouse is an Australian citizen thus the requirement of paragraph 7(2)(b) of the definition is satisfied.

In regards to the requirement of paragraph 7(2)(a), to reside in Australia, the Social Security Act 1991 does not contain a definition of what it means to 'reside in Australia' for the purposes of that Act. However, instructions to assist in interpreting the term 'reside in Australia' are provided in the note at subsection 5(8) of the Social Security Act 1991. Subsection 5(8) states:

….

Note: Australian Resident is defined by subsection 7(2) but resident of Australia has its ordinary meaning and is not given any special definition by this Act. Subsection 7(3) is relevant to the question of whether a person is residing in Australia.

Subsection 7(3) then states:

In deciding for the purposes of this Act whether or not a person is residing in Australia, regard must be and to:

(a) the nature of the accommodation used by the person in Australia; and

(b) the nature and extent of the family relationships the person has in Australia; and

(c) the nature and extent of the person's employment, business or financial ties with Australia; and

(d) the nature and extent of the person's assets located in Australia; and

(e) the frequency and duration of the person's travel outside Australia; and

(f) any other matter relevant to determining whether the person intends to remain permanently in Australia.

You have advised that your employee and their spouse have relocated to Australia together for the period of your employee's employment with you. Your employee is employed by you, sponsored on a 457 visa. Your employee and their spouse live in a rented flat in Australia. Based on this information provided by you and in consideration of the factors listed in subsection 7(3) of the Social Security Act 1991, we accept that your employee's spouse is residing in Australia for the purposes of the Social Security Act 1991.

As the requirements of subsection 7(2) of the Social Security Act 1991 are satisfied, it is accepted that your employee's spouse is an Australian resident according to that Act.

Therefore, as your employee is considered to be an Australian resident within the meaning of the ITAA 1997 and your employee's spouse is an Australian resident within the meaning of the Social Security Act 1991, your employee is considered not to be a temporary resident for the purposes of the transitional provisions.

Not a temporary resident during the transitional period

Subsection 27(3) of the transitional provisions defines the transitional period as follows:

In this item:

…

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)(b) or (2)(b) ends; and

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

The circumstances surrounding your employee's and your employee's spouse's residency status has remained the same since their move to Australia which occurred prior to 1 October 2012. Therefore we accept that your employee was not a temporary resident at the commencement of the transitional period and will remain so until the transitional period ends in accordance with paragraph 27(3) of the transitional provisions or until your employee ceases to be 'not a temporary resident' for the purposes of the transitional provisions.

4. During the period from Budget time to 30 September 2012, was the employment covered by an eligible employment arrangement that was neither materially varied nor renewed?

'Budget time' is defined in the transitional provisions as '…7.30pm, by legal time in the Australian Capital Territory, on 8 May 2012'.

You have stated that the employee's employment is covered by an eligible employment arrangement which has been in place since a date prior to 8 May 2012 and has not been varied or renewed.

Conclusion

Your employee's circumstances satisfy the following conditions as set out in subsection 27(1) of the transitional provisions:

1) on or after 1 October 2012 the employee lives away from their normal residence (whether a benefit provided for living away from that residence on or after that day was paid before, on or after that day)

2) during the transitional period the employee is not a foreign resident

3) during the transitional period the employee is not a temporary resident

4) during the period from Budget time to 30 September 2012 the employment was covered by an eligible employment arrangement that was neither materially varied nor renewed.

Therefore, section 31(2) of the FBTAA can be used to calculate the taxable value of the living-away-from-home allowance benefit until the end of the transitional period in accordance with subsection 27(3)(d) or until they no longer satisfy the conditions of the transitional provisions, whichever occurs earlier.

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