Edited version of your private ruling

Authorisation Number: 1012459223766

Ruling

Subject: Payment of subsidy

Question 1

Is the $xxx per week payment to you by your employer assessable income to you?

Answer

Yes

Question 2

If the answer to question one is yes, can you claim any portion of the $xxx per week payment as a deduction under section 8-1 of the Income Tax Assessment Act 1997?

Answer

No

This ruling applies for the following periods

01 October 2012 to 30 June 2013

The scheme commences on

01 October 2012 to 30 June 2013

Relevant facts and circumstances

You and your spouse work for a company at D.

You both lived in A then moved to C where you had finished building a new home.

A is a remote area for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) and is in Zone B for income tax purposes.

You state that your usual place of residence now is at C to which you return to after completion of your roster.

You still reside at you're A accommodation unit when on roster for work.

You and your spouse receive an additional payment of $xxx per week each to subsidise your accommodation and meal expenses as you do not utilise any camp accommodation and meal facilities provided by employer. This amount is included in your gross pay.

You state that you both receive approximately $yyy each out of the $xxx payment per week after tax. Accommodation expenses are $xx each per week.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 23L

Fringe Benefits tax Assessment Act 1986 Section 30

Fringe Benefits tax Assessment Act 1986 Subsection 136(1)

Taxation Administration Act 1953 Schedule 1

Income Tax Assessment Act 1953 Section 12-35

Income Tax Assessment Act 1997 Subsection 6-5(1)

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Question 1

Detailed reasoning

Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a person's assessable income includes income according to ordinary concepts, which is called ordinary income.

Subsection 6-5(2) of the ITAA 1997 then goes on to indicate that if a person is an Australian resident, the person's assessable income includes the ordinary income the person derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Salary and wages falls under the ordinary concept of income under section 6-5 of the ITAA 1997.

Subsection 136(1) FBTAA defines salary and wages as a payment from which an amount must be withheld under a provision in Schedule 1 to the Taxation Administration Act 1953 to the extent that the payment is assessable income. It includes payments to employees covered under section 12-35. Section 12-35 states that an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee.

The $yyy per week payment to you by your employer would come within the meaning of salary and wages and fall within the concept of ordinary income and would be assessable income under section 6-5(1) ITAA 1997 unless it would be excluded from the notion of ordinary income by section 23L(1) Income Tax Assessment Act 1936 (ITAA 1936).

Section 23L (ITAA 1936) provides that 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 whether the $yyy per week payment constitutes a LAFHA fringe benefit needs to be considered.

The payment of a LAFHA to an employee is a fringe benefit.

For FBT purposes, a LAFHA is an allowance the employer pays to an employee to compensate for additional expenses incurred and any disadvantages suffered because the employee's duties of employment require them to live away from their normal residence.

The term 'additional expenses' does not include expenses the employee would be entitled to claim as an income tax deduction.

For a payment to an employee to be considered a LAFHA, there are three conditions that must be met. These are outlined in Chapter 11 of the Fringe benefits tax - a guide for employers (which can be located on the Australian Taxation Office Website at www.ato.gov.au).

1. It is an allowance the employer pays an employee in respect of the employment of that employee.

2. The duties of their employment require them to live away from their normal residence.

3. The whole or part of the allowance is in the nature of compensation for:

· non-deductible additional expenses your employee might be expected to incur, or

· non-deductible additional expenses your employee might be expected to incur and other disadvantages suffered, because the duties of your employee's job require them to live away from their normal residence.

A LAFHA exists where 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 accommodation and additional living expenses that the employee might be expected to incur because the duties of the employee's employment require them to live away from their normal residence.

Whether an employee's job requires them to live away from their normal residence, and where the employee's normal residence is located, is a question of fact and will depend on each employee's circumstances.

Normal residence

'Normal residence' is a broad term that means a LAFHA fringe benefit can arise regardless of the location of an employee's usual place of residence.

If an employee's usual place of residence is in Australia then their normal residence is in Australia is also their usual place of residence.

Usual place of residence

An employee's place of residence is the place at which they reside or have some form of sleeping accommodation, regardless of whether on a permanent or temporary basis, or on a shared basis.

However, the question of whether an employee is living away from their usual place of residence involves a consideration of two places of residence - the place where the employee is living at the time, and some other place.

An employee is regarded as living away from their usual place of residence if they would have continued to live at the former place had the duties of their employment not required them to work temporarily in the new locality.

Practical guidelines for determining whether living away from home

The principles of determining whether an employee is living away from their usual place of residence have been established over the years by case law decisions. Whether or not an employee is living away from home will depend on the facts of each case. Similar principles can apply to determine if an employee is living away from their normal residence.

Section 30 FBTAA provides that the employee's change of normal residence is required in order to enable the employee to perform the duties of their employment.

In the Administrative Appeals Tribunal case of Re Compass Group (Vic) Pty Ltd (as trustee for White Roche & Associates Hybrid Trust) v. FC of T [ 2008] AATA 845; 2008 ATC 10-051; (2008) 71 ATR 720 (Compass), the Tribunal examined the meaning of the word 'required' in the context of living-away-from-home allowance benefits under former subsection 30(1). The Tribunal considered whether the employee was required to live away from his usual place of residence in order to perform the duties of his employment and, therefore, whether the allowance was a living-away-from-home allowance within the meaning in former subsection 30(1).

In the Compass case:

The employer sought a private ruling contending the allowance paid was a living-away-from-home allowance (LAFHA) fringe benefit even though the place of employment had not changed. The Commissioner answered in the negative. The taxpayer objected, the Commissioner disallowed his objection decision, and the taxpayer sought review by the AAT. The employer submitted that the employee's usual place of residence was the Murrindindi property.

The Commissioner submitted that the allowance paid could not constitute a LAFHA within the meaning of section 30(1) of the Fringe Benefits Tax Assessment Act 1986 as it was not incurred as a result of Mr B's being "required" to live away from his usual place of residence; there was nothing in the nature of Mr B's employment that demanded that he stay in accommodation in Lilydale.

The court dismissed the objection and affirmed the objection decision under review on the grounds that the allowance paid did not constitute a benefit within the meaning of section 30(1) FBTAA as Mr B was not "required" to live away from his usual place of residence in order to perform the duties of his employment. The word "require" did not contemplate choice. Beyond the fact of the payment of allowance, there was no evidence that suggested that the employer required the employee to rent premises and live in Lilydale closer to his place of employment during the week or even requested that the employee do so in order that he could perform his duties.

The payment of the allowance assumed the character of a location allowance which fell within the meaning of "salary or wages" under section 221A of the ITAA 1936 and was therefore not a "fringe benefit" under s 136(1). The payment of the allowance was a product or incident of the applicant's employment and as such formed part of his assessable income.

As explained earlier one of the requirements for payment of an allowance to qualify as a living away from home allowance fringe benefit is the requirement that the employee live away from their normal residence in order to be able to perform their employment duties.

You were already residing in A and working at the mine when you decided to move to C and live there when off roster and return to A when on roster. Your A accommodation was your normal residence when you moved to C.

It was your choice to move outside the xx km radius outlined in your employer's, Enterprise Agreement 20XX, and not the employer's directive/requirement that you move to C. Further the move to C was not required in order to enable you to perform the duties of your employment.

The additional $yyy/week payment to you would not amount to a living away from home allowance fringe benefit because there was no requirement by your employer for you to change your normal residence to C from A and return to A whilst on duty in order to be able perform your employment duties.

This means the $xxx/week payment to you would come within the meaning of salary and wages and fall within the concept of ordinary income and be assessable income to you under section 6-5 ITAA 1997.

Question 2

Detailed reasoning

Your accommodation and meal expenses are not an allowable tax deduction because they are considered private expenses in your circumstances. They are not incurred 'in the course of gaining and producing' your assessable income.

The mere receipt of an allowance/subsidy does not automatically entitle an employee to a deduction or a rebate.

Deductions for expenses are covered by section 8-1 ITAA. An employee is entitled under section 8-1 ITAA 1997 to a deduction for expenditure incurred in gaining or producing assessable income other than expenditure of a capital, private or domestic nature. A deduction is not allowable if an employee incurs additional expenditure of a private or domestic nature.

Section 8-1 ITAA 1997 states:

(1) You can deduct from your assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income; or

(b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.

(2) However, you cannot deduct a loss or outgoing under this section to the extent that:

(a) it is a loss or outgoing of capital, or of a capital nature; or

(b) it is a loss or outgoing of a private or domestic nature; or

(c) it is incurred in relation to gaining or producing your exempt income; or

(d) a provision of this Act prevents you from deducting it.

Accommodation expenses are generally not deductible as they are considered an outgoing of a private or domestic nature. The decisions in several court cases are of some relevance in determining deductibility under section 8 ITAA 1997. These include Federal Commissioner of Taxation v Charlton (1984) 15 ATR 711; 84 ATC 4415. In this case the taxpayer was a pathologist employed to carry out autopsies for the local coroner in Bendigo. He rented a flat in Bendigo while maintaining a permanent family home in Melbourne, located approximately 150kms away. There was evidence that there was difficulty in finding motel accommodation in Bendigo and the taxpayer was reluctant to make the round trip back to Melbourne without rest. The taxpayer claimed that the rental was incurred in the production of assessable income.

Justice Crockett of the Supreme Court of Victoria allowed the Commissioner's appeal and ruled:

The Commissioner contends (correctly in my view) that, if the taxpayer should choose to reside so far from the place where it is necessary for him to be in order to gain his income that he, not only needs to incur expense in travelling to that place but, also to incur expense in the provision to him of some accommodation transitory or discontinuous in its use and secondary to or temporarily supplemental of his actual home, then that expense, too, is for the same reason non-deductible.

The taxpayer's election to live in Melbourne and not in Bendigo meant that the rental expended on the flat in order to enable him to secure accommodation in which to recuperate from the rigours of travel and the nature of his work was an expenditure dictated not by his work but by private considerations.

In Federal Commissioner of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466, the Federal Court held that expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location were not an allowable deduction as they were considered to be private expenses.

Another case of relevance is U49, 87 ATC 337 which was heard by the Administrative Appeals Tribunal. In this case the taxpayer was employed by the New South Wales Department of Agriculture. His position was abolished and he was assigned to a new position that required work in the field but was headquartered in Newcastle. The taxpayer maintained his family home in a northern suburb of Sydney, but thought it was impractical to commute. He paid for board and lodging for weekdays in Newcastle and claimed the accommodation expenses as a deduction.

Senior Member McMahon held that:

As a matter of legal logic, there is no difference in principle between the rent paid for the taxpayer's dwelling house and the amount paid for his board and lodging. The fact that he maintained his principal establishment for the housing of his family does not change the character of the monies paid for his accommodation and sustenance elsewhere. They continue to be private and domestic. Furthermore in this case they are not relevant to the earning of assessable income.

An application of the principles discussed in Lunney v. Commissioner of Taxation, 100 CLR 478 leads to the conclusion that the expenses of living away from home are not expenses that are incurred in the interests of the employer; they are incurred as a consequence of the employee's decision to maintain his usual abode in a place remote from his place of work. Thus, not only can it be said that the taxpayer's board and lodging were private and domestic expenses, it seems to me that such expenditure is not in any relevant sense incurred for the purposes of earning assessable income. It is properly characterised as a personal or living expense.

Relating the above cases to your circumstances it is concluded that there is no nexus between your accommodation and meal expenses and you assessable income and therefore they do not have the essential character of an income-producing expense.

The fact that you reside in C when off roster away from your place of accommodation in A whilst on roster does not alter the inherently private nature of your accommodation and meal expenses. The additional accommodation expense is not considered to be dictated by your work but by private considerations,

Therefore you are not entitled to claim any portion of the $xxx per week payment as a deduction under section 8 ITAA.1997.

Note: no portion of the $xxx payment is deductible under any other section of the ITAA 1936 or ITAA 1997.

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