Edited version of your private ruling

Authorisation Number: 1012434381090

Ruling

Subject: Living -away-from-home benefits (transitional provisions)

Question 1

Will the taxable value of the living-away-from-home allowance paid to the four employees be calculated under section 31 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) during the period from 1 October 2012 to 31 March 2014?

Answer

No.

Question 2

Will the payment of the rent expenses of the four employees be an exempt benefit under either section 21 or subsection 47(5) of the FBTAA during the period from 1 October 2012 to 31 March 2014?

Answer

No.

This ruling applies for the following periods:

1 April 2012 - 31 March 2013

1 April 2013 - 31 march 2014.

The scheme commences on:

3 March 2011.

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.

Some of your employees are citizens of an overseas country.

Each of the employees is working in Australia on a temporary assignment.

Each employee is expected to return to the overseas country at the end of their assignment.

Each employee holds a Temporary Work (Skilled) (subclass 457) visa for non-citizens, provided under the Migration Act 1958.

Each employee maintains a principal residence in the overseas country that they are living away from it in order to carry out their employment duties in Australia.

Under the employment arrangements in place prior to 7.30pm on 8 May 2012, the employer has been providing the employees with an allowance to cover extra food expenses and paying the rental expenses for the employee's accommodation.

Each employee is accompanied by their spouse. None of the spouses is an Australian resident for the purposes of the Social Security Act 1991.

None of the employees or their spouses holds a permanent visa or a special category visa as a protected SCV holder.

None of the employees or their spouses is an Australian citizen.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 21

Fringe Benefits Tax Assessment Act 1986 section 30

Fringe Benefits Tax Assessment Act 1986 section 31

Fringe Benefits Tax Assessment Act 1986 section 31A

Fringe Benefits Tax Assessment Act 1986 section 31B

Fringe Benefits Tax Assessment Act 1986 section 31C

Fringe Benefits Tax Assessment Act 1986 section 31D

Fringe Benefits Tax Assessment Act 1986 section 31F

Fringe Benefits Tax Assessment Act 1986 subsection 47(5)

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

Tax Laws Amendment (2012 Measures No. 4) Act 2012, Part 3 Schedule 1 item 26

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

Migration Act 1958

Social Security Act 1991.

Reasons for decision

1. Will the taxable value of the living-away-from-home allowance paid to the four employees be calculated under section 31 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) during the period from 1 October 2012 to 31 March 2014?

During the period you will be paying the employees an allowance to cover the cost of their food expenses whilst they are in Australia. This allowance will be a living-away-from-home allowance if the conditions contained in subsection 30(1) of the FBTAA are met.

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

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 considering these conditions it is accepted:

· the payments made to the employees are an allowance as the payments are a predetermined amount that are paid on a monthly basis;

· the payments are to cover the additional food expenses whilst the employees are in Australia;

· in view of the period of time for which the employees will be Australia the employees will not be able to claim an income tax deduction for the food expenses; and

· the employees are required to live away from their Japanese residence in order to perform their duties of employment.

Therefore, it is agreed the allowance being paid for food is a living-away-from-home allowance.

Sections 31, 31A and 31B of the FBTAA provide three alternate methods that can be used to calculate the taxable value of a living-away-from-home allowance fringe benefit. The relevant method to use depends upon whether the requirements of subsection 31(1) or subsection 31A(1) of the FBTAA are met.

If the requirements of subsection 31(1) of the FBTAA are met, the taxable value under subsection 31(2) will be the amount of the fringe benefit reduced by any exempt accommodation component and any exempt food component.

Alternatively, if the requirements of subsection 31A(1) of the FBTAA are met, the taxable value under subsection 31A(2) will be the amount of the fringe benefit reduced by any exempt accommodation component and any exempt food component. The requirements of this subsection are considered if the employee satisfies the fly-in fly-out and drive-in drive out requirements contained in section 31E of the FBTAA.

However, if the requirements of neither subsections 31(1) or 31A(2) of the FBTAA are met, the taxable value under section 31B of the FBTAA will be the amount of the fringe benefit.

As the employees are not fly-in fly-out or drive-in drive-out employees, the taxable value of the living-away-from-home allowance paid to your employees will depend upon whether the requirements of subsection 31(1) of the FBTAA are met.

Will the requirements of subsection 31(1) be met?

Subsection 31(1) of the FBTAA states:

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).

However, this is subject to the transitional provisions contained in items 27 and 28 of the Tax Laws Amendment (2012 Measures No. 4) Act 2012.

Sub-items 27(1) and 27(2) of the Tax Laws Amendment (2012 Measures No. 4) Act 2012 enable some of the tests in subsection 31(1) of the FBTAA to be disregarded during the transitional period. These sub-items state:

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.

Therefore, if the employment during the relevant period was covered by an eligible employment arrangement that has not been varied in a material way nor renewed, you can disregard:

· paragraph 31C(a) and section 31D of the FBTAA if the employee is neither a temporary resident nor a foreign resident; and

· section 31D if the employee is a temporary resident or a foreign resident.

Is there an eligible employment arrangement that has not been varied in a material way?

It is accepted that eligible employment arrangements were in place in relation to the employees and these arrangements have not been varied in a material way or renewed. Therefore, it is necessary to consider whether the employees are either a temporary resident or a foreign resident.

Are your employees temporary residents?

Sub item 27(3) of the Tax Laws Amendment (2012 Measures No. 4) Act 2012 defines a temporary resident as having the same meaning as in the Income Tax Assessment Act 1997 (ITAA 1997).

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

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 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.

Each of these conditions is considered below:

a) Do the employees hold a temporary visa granted under the Migration Act 1958?

Each of the employees is employed in Australia on a temporary 457 visa, and is expected to return to their home country at the end of their term of employment.

Details on Temporary Work (Skilled) (subclass 457) visas for non-citizens, is provided in Division 3 of the Migration Act 1958. The method of applying for a temporary 457 visa is detailed in Subdivision AA of Division 3 of the Migration Act 1958, and the Migration Regulations 1994, Volume 4, made under the Migration Act 1958.

As the employees hold visas granted under the Migration Act 1958, and as the visas are temporary, they therefore satisfy this requirement.

b) Are the employees Australian residents within the meaning of the Social Security Act 1991?

The term 'Australian resident' is defined in subsection 7(1) of the Social Security Act 1991 as:

(1) In this Act, unless the contrary intention appears:

"Australian resident" has the meaning given by subsection (2).

…

Subsection 7(2) of the Social Security Act 1991 states:

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.

In considering these requirements:

· the employees are citizens of an overseas country, rather than Australian citizens; and

· do not hold a permanent visa.

Subsection 7(2A) of the Social Security Act 1991 states:

A person is a protected SCV holder if:

(a) the person was in Australia on 26 January 2001 … or

(b) the person had been in Australia for … 12 months during the period of 2 years

immediately before 26 February 2001 …

The employees were not in Australia for the required time periods to qualify as a protected SCV holder.

Therefore, as the employees:

· are not Australian citizens;

· do not hold a permanent visa; and

· are not a protected SCV holder;

they are not an Australian resident for the purposes of the Social Security Act 1991.

Are the spouses of your employees Australian residents within the meaning of the Social Security Act 1991?

For the same reasons discussed in relation to the employees, the employees' spouses will also not be Australian residents for the purposes of the Social Security Act 1991 as:

· they are not Australian citizens;

· they do not hold a permanent visa; and

· are not a protected SCV holder.,

Are the conclusions made in relation to paragraphs (a), (b) and (c) of the temporary resident definition affected by the following paragraph and note?

The following paragraph and note to the definition of temporary resident state:

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.

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.

For this paragraph and note to apply, it is necessary for one of the preceding paragraphs not to be satisfied at any time after the commencement of the definition of a 'temporary resident' in subsection 995-1(1) of the ITAA 1997. In your ruling application you contend:

…these paragraphs are significant because they indicate that the basis of whether or not an individual is a temporary or non-temporary resident is predicated on whether or not they have a "significant connection with Australia."

You contend that the employees have a significant connection to Australia as:

1. The managers are in Australia for the maximum period permitted under a 457 visa, namely four years, with a view of obtaining permanent residency in future.

2. Three of the managers have children who also reside with them in Australia.

3. Each of the managers makes a direct, crucial contribution to a company which provides Australia with valuable economic input, which already pays substantial taxes to Australia (including Fringe Benefits Tax) and provides employment for local staff.

In relation to these contentions, it is relevant to note that for the allowance to be a living-away-from-home allowance, subsection 30(1) requires the employee to be living away from his or her normal residence. Normal residence is defined in subsection 136(1) to mean:

(a) if the employee's usual place of residence is in Australia - the employee's usual place of residence; or

(b) otherwise - either:

(i) the employee's usual place of residence; or

(ii) the place in Australia where the employee usually resides when in Australia.

As the employees are not living away from the place in Australia where they usually reside when in Australia, the requirement in subsection 30(1) for the employees to be living away from their normal residence will only be met if the overseas residence is the normal residence. This requires the overseas residence to be the usual place of residence.

Guidelines for determining the employees' usual place of residence are provided in paragraphs 11 to 25 of Taxation Ruling No. MT 2030 Fringe benefits tax: living-away-from-home allowance benefits. Paragraph 14 of MT 2030 states:

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.

In applying this paragraph, the treatment of the allowance as a living-away-from-home allowance is dependant upon the employees being temporarily in Australia. A stated intention to obtain permanent residency raises the question of whether they are temporarily in Australia. If the employees are not temporarily in Australia, then the residences in Australia are more likely to be the usual place of residence. In such a situation, the allowance will not be a living-away-from-home allowance.

Although it is possible to reach this conclusion based on your contentions, the facts as provided indicate the employees are only in Australia on a temporary basis and have an intention to return to the overseas country at the conclusion of their assignment. Therefore, as there is no basis for concluding that the employees have been an Australian resident, or any of the paragraphs of the temporary resident definition have applied we consider the employees are temporary residents who are receiving a living-away-from-home allowance.

As the employees are temporary residents, the relevant sub item in the Tax Laws Amendment (2012 Measures No. 4) Act 2012 is 27(2). Under this sub item, the only test in section 31 that will be disregarded is the test contained in section 31D of the FBTAA.

That is, in determining whether the method in subsection 31(2) of the FBTAA can be applied to calculate the taxable value, it is necessary to consider whether the conditions in section 31C are met.

Section 31C of the FBTAA states:

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.

Your employees will satisfy the requirements of section 31C of the FBTAA if:

(a) the place in Australia where the employee usually resides when in Australia has a unit of accommodation in which the employee or the employee's spouse has an ownership interest (within the meaning of the ITAA 1997); and

(b) the place in Australia where the employee usually resides when in Australia 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

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

It is accepted that the employees have an ownership interest in a unit of accommodation in Australia which is available for their immediate use and enjoyment. However, subparagraph 31C(a)(ii) of the FBTAA requires it to be available during the relevant period, which is the period that the employees duties require the employee to live away from the place in Australia in which they usually reside.

As the duties of employment do not require the employees to live away from the place in Australia at which they usually reside, there is no relevant period. Therefore, the requirements of section 31C of the FBTAA are not met, and the appropriate method to use to calculate the taxable value of the living-away-from-home fringe benefit is that contained in section 31B of the FBTAA.

Support for this conclusion is provided by paragraph 1.24 of the Revised Explanatory Memorandum, which stated:

Taxable value - employee maintains a home in Australia

1.24 The taxable value of the LAFHA fringe benefit provided to an employee is calculated as the amount of the fringe benefit reduced by:

· any exempt accommodation component; and

· any exempt food component;

[Schedule 1, Part 1, item 1, subsection 31(2)]

where:

· the employee maintains a home in Australia (at which they usually reside) for their immediate use and enjoyment at all times;

· the fringe benefit relates to the first 12 months of the employee living away from that home in Australia for the purposes of their employment; and

· the employee provides the employer with a declaration about living away from home.

2. Will the payment of the rent expenses of the four employees be an exempt benefit under either section 21 or subsection 47(5) of the FBTAA during the period from 1 October 2012 to 31 March 2014?

In addition to the allowance that you are paying to the employees, you are also paying their rental expenses. From the information provided it is not clear whether the rental expenses were incurred by the employees.

If the benefit being provided is the payment of rental expenses incurred by the employees, an expense payment fringe benefit will arise unless the benefit is an exempt benefit under section 21 of the FBTAA. Section 21 of the FBTAA states:

Where:

(a) an expense payment benefit is provided in a year of tax to a current employee of an employer in respect of his or her employment; and

(b) the recipients expenditure is in respect of accommodation for eligible family members; and

(ba) the accommodation is not provided while the employee is undertaking travel in the course of performing the duties of that employment; and

(c) the accommodation is required solely because the duties of that employment require the employee to live away from his or her normal residence; and


(d) the employee satisfies:

(i) sections 31C (about maintaining an Australian home) and 31D (about the first 12 months); or

(ii) section 31E (about fly-in fly-out and drive-in drive-out requirements); and

(e) the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out:

(i) if the employee satisfies sections 31C and 31D - the matters in subparagraphs 31F(1)(a)(i) to (iii); or

(ii) if the employee satisfies section 31E - the matters in subparagraphs 31F(1)(b)(i) to (iii);

the benefit is an exempt benefit in relation to the year of tax.

Alternatively, if the benefit is the provision of accommodation in premises that you rent, a residual fringe benefit will arise unless the benefit is an exempt benefit under subsection 47(5) of the FBTAA.

Subsection 47(5) of the FBTAA states:

Where:

(a) a residual benefit consisting of the subsistence, during a year of tax, of a lease or licence in respect of a unit of accommodation is provided to an employee of an employer in respect of his or her employment; and


(b) the unit of accommodation is for the accommodation of eligible family members and is provided solely because the duties of that employment require the employee to live away from his or her normal residence; and


(ba) the employee satisfies:

(i) sections 31C (about maintaining an Australian home) and 31D (about the first 12 months); or

(ii) section 31E (about fly-in fly-out and drive-in drive-out requirements); and

(c) the accommodation is not provided while the employee is undertaking travel in the course of performing the duties of that employment; and

(d) any of the following conditions is satisfied:

(i) subsection (7) applies in relation to the provision of transport for the employee in connection with travel in the period in the year of tax when the lease or licence subsisted, being travel between the employee's usual place of residence and the employee's usual place of employment;
(ii) if the employee satisfies sections 31C and 31D - the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out the matters in subparagraphs 31F(1)(a)(i) to (iii);
(iii) if the employee satisfies section 31E - the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out the matters in subparagraphs 31F(1)(b)(i) to (iii);

the benefit is an exempt benefit in relation to the year of tax.

Both section 21 and subsection 47(5) contain the section 31C and 31D requirements that were discussed above in relation to section 31. However, as with section 31 the application of these requirements is subject to the transitional arrangements contained in sub-items 27(1) and 27(2) of the Tax Laws Amendment (2012 Measures No. 4) Act 2012.

As discussed above, if the employment during the relevant period was covered by an eligible employment arrangement that has not been varied in a material way nor renewed, you can disregard:

· paragraph 31C(a) and section 31D of the FBTAA if the employee is neither a temporary resident nor a foreign resident; and

· section 31D if the employee is a temporary resident or a foreign resident.

For the reasons discussed above, the employees are considered to be a temporary resident. Therefore, the only requirements that will be disregarded during the transitional period are those contained in section 31D and the benefit will not be an exempt benefit if the requirements of paragraph 31C(a) are not met.

As discussed above, the requirements of paragraph 31C(a) are not met. Therefore, the benefit that arises from the rental expenses will be a fringe benefit during the transitional period.

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