Edited version of your private ruling

Authorisation Number: 1012471335258

Ruling

Subject: Living away from home allowance

Question 1

Can the allowance paid to fly-in fly-out employees called 'living away from home' allowance be treated as a living-away-from-home-allowance (LAFHA) under subsection 30(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

If the answer to question 1 is yes, will the taxable value of the fringe benefit be reduced in accordance with section 31B of the FBTAA?

Answer

No.

This ruling applies for the following periods:

1 April 2012 to 31 March 2013

1 April 2013 to 31 March 2014

1 April 2014 to 31 March 2015

1 April 2015 to 31 March 2016

The scheme commenced on:

4 April 2013.

Relevant facts and circumstances

The employer and employee's union have entered into an enterprise bargaining agreement (EBA) effective from 4 April 2013 and expire on 30 June 2015.

The following clauses are relevant to this private ruling application:

4. Scope and Application

4.1 This Agreement shall regulate the rates of pay and define the conditions of employment for employees of WXYZ Pty Ltd hereinafter referred to as "the employer", who are engaged to perform work under the terms and conditions of this agreement, on Offshore Production Platforms.

5. Parties Bound
5.1 WXYZ Pty Ltd "the Employer or Company"
5.2 All employees engaged in tasks as set out in clause 4.1 whether members of an organisation of employees listed in clause 4.1 hereof or not, engaged in any of the occupations, industries or callings specified in the Award.

18. Living Away from Home Allowance
18.1 An allowance per day or part thereof shall be paid to cover the disabilities associated with isolation, accumulating days off and the lack of normal amenities of town or city dwelling. The allowance is full compensation for disabilities associated with sharing accommodation and the type of facilities and living conditions available when working on a Platform. In the event that the Living Away from Home Allowance falls below the client's standard it is agreed that an automatic adjustment shall apply to bring the allowance up to the client's standard.

You have a contract to provide maintenance services.

To provide these services, you have hired employees to work on a rotational basis.

All food and accommodation is provided to employees.

Transport is provided by the employer for these employees to travel to and from their place of work.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 30,

Fringe Benefits Tax Assessment Act 1986 section 31A,

Fringe Benefits Tax Assessment Act 1986 section 31B,

Fringe Benefits Tax Assessment Act 1986 section 31E and

Fringe Benefits Tax Assessment Act 1986 section 31F.

Reasons for decision

Question 1

Generally when an allowance is paid to an employee it will form part of the employee's assessable income. An employee can claim an allowable deduction against this income. However, an allowance which is a living-away-from-home allowance (LAFHA) will be a fringe benefit.

As a fringe benefit, a living-away-from-home allowance will not be part of the employee's assessable income. However, the employer may be liable to pay fringe benefits tax on the amount of the allowance.

Therefore, in determining how the allowance paid to the FIFO employees, the initial question to consider is whether the allowance is a living-away-from-home allowance in accordance with section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

For the allowance to be a LAFHA it must come within either subsection 30(1) or 30(2) of the FBTAA as amended by Act 142 of 2012 (Tax Law Amendment (2012 Measures No.4) Act 2012, which received Royal Assent on 28 September 2012.

This Act includes the amendments made to the LAFHA provisions of the FBTAA.

Fly-in Fly-out employee requirements under Section 31E of the FBTAA.

Before addressing the issue of whether the allowance is a LAFHA, the FBTAA now requires a FIFO employee to meet certain criteria, so that they will be known as FIFO employees. This will eliminate any confusion regarding these types of employees.

All criteria set out in section 31E of the FBTAA, have to be met.

These requirements are:

SECTION 31E  

31E FLY-IN FLY-OUT REQUIREMENTS  

The employee satisfies this section if:

(a) the employee, on a regular and rotational basis:

(i) works for a number of days and has a number of days off (but not the same days in consecutive weeks); and

(ii) on completion of the working days, travels from his or her usual place of employment to his or her normal residence and, on completion of the days off, returns to that usual place of employment; and

(b) the basis of work described in paragraph (a) is customary for employees performing similar duties in that industry; and

(c) it would be unreasonable to expect the employee to travel on a daily basis on work days between:

(i) his or her usual place of employment; and

(ii) his or her normal residence;

having regard to the location of those places; and

(d) it is reasonable to expect that the employee will resume living in his or her normal residence when the duties of that employment no longer require him or her to live away from it.

(a) The employee, on a regular and rotational basis, (i) works a number of days in one week and then has a number of days off work in the following and (ii) the employee travels to his/her usual place of residence (on days off) and returns to his/her usual place of employment to perform employment duties.

In applying these laws to the facts to your circumstances, a FIFO employee, is working on a rotational basis and do not work the same hours in consecutive weeks.

These employees travel home during their days off and return to work on days they have to perform their employment duties.

(b) The basis of work described in paragraph (a) is customary for employees performing similar duties in that industry

The industry operations occur in the deep sea. An place of employment is usually set up to accommodate employees who are required to live on site to perform employment duties (amongst other matters). These sites are stationed off shore. It is accepted that these employees in the specific industry have to perform duties by flying-in (for a specified number of days and working long hours during that period) and then flying-out on their days off to recuperate. Therefore it is customary in this industry to have these types of employees.

(c) It would be unreasonable to expect the employee to travel on a daily basis on work days between: (i) his or her usual place of employment; and (ii) his or her normal residence; having regard to the location of those places

These employees are flown in and out. The place of employment is situated in deep water far away from land; therefore it would be very difficult to travel on a daily basis to and from the employee's usual place of employment and his/her normal residence. These employees are paid other allowances separately from the LAFHA and on top of their wages.

'Normal residence' is defined in subsection 136(1) of the FBTAA:

in relation to an employee, means:

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

Therefore, an employee who is a residence of Australia, his/her normal residence and usual place of residence will be the same place.

(d) It is reasonable to expect that the employee will resume living in his or her normal residence when the duties of that employment no longer require him or her to live away from it.

These employees are hired to apply their particular skills. When their skills are not required, these employees will return to their normal residence.

Conclusion:

All the FIFO employee requirements under section 31E of the FBTAA are satisfied. These employees are FIFO employees.

Having determined that the employees are FIFO employees, we now need to determine that the LAFH allowance paid to FIFO employees is an allowance covered by section 30 of the FBTAA.

Subsection 30(2) of the FBTAA was specifically introduced to cover employees who work in this particular industry. It applies after 10 October 1991. It was introduced in response to the decision of the Federal Court in Atwood Oceanic Australia Pty Ltd v Federal Commissioner of Taxation (1989), 20 ATR 742; (1989) 30 IR 58; 89 ATC 4508 (Atwood's case).

Subsection 30(2) of the FBTAA states:

If:

(a) at a particular time after 10 October 1991, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and

(b) the employee's usual place of employment is on an oil rig, or other petroleum or gas installation, at sea; and

(c) the employee is provided with residential accommodation at or near that usual place of employment; and

(d) the allowance is expressed to be paid as a living-away-from-home allowance; and

(e) no part of the allowance is covered by subsection (1); and

(f) it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for 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 of the allowance constitutes a benefit provided by the employer to the employee at that time.

In considering these conditions:

(a) Is the allowance paid after 10 October 1991?

The allowance is paid after 10 October 1991.

(b) Is the employee's usual place of employment on an oil rig or other petroleum or gas installation at sea?

The employees undertake their duties at sea.

(c) Are the employees provided with accommodation at or near the usual place of employment?

The employees are provided with accommodation at or near the usual place of employment.

(d) Is the allowance expressed to be paid as a living-away-from-home allowance?

The clause of the EBA has the title 'Living Away from Home Allowance'. Furthermore, the clause refers to the allowance being a Living Away from Home Allowance. In view of these references it is accepted that the allowance is expressed as being a living-away-from-home allowance.

(e) Is any part of the allowance covered by subsection 30(1)?

The application of subsection 30(1) was considered by Lee J in Atwood's case. In discussing the application of paragraph 30(1)(b) of the FBTAA to an allowance paid to workers who worked on an offshore drilling rig, Lee J said at ATC4816:

The required character of the allowance was that it be a payment to an employee in the nature of compensation for additional expenses incurred by the employee during a period of employment, or for additional expenses so incurred and other additional disadvantages to which the employee was subject during that period by reason of the fact that the employee was required to live away from his usual place of residence.

The allowance does not have this character as it is not paid for additional expenses. It is only paid for additional disadvantages. As the allowance does not have the required character it is not covered by subsection 30(1) of the FBTAA.

(f) Can it be concluded that the allowance is in the nature of compensation to the employee for disadvantages to which the employee is subject as a result of having to live away from the usual place of residence in order to perform the duties of employment?

This paragraph contains two conditions. To satisfy this paragraph:

(i) the allowance must be in the nature of compensation for disadvantages to which the employee is subject; and

(ii) the disadvantages must arise as a result of the employee being required to live away from the usual place of residence in order to perform the duties of that employment.

Is the allowance in the nature of compensation for disadvantages to which the employee is subject?

The allowance is paid to cover the disabilities associated with working away from the usual place of residence.

Therefore, it is accepted that the allowance is in the nature of compensation for disadvantages suffered in the hands of these employees.

Do the disadvantages arise as a result of the employee being required to live away from the usual place of residence in order to perform the duties of that employment?

The issue of what is meant by the term 'usual place of residence' is addressed in paragraphs 11 to 25 of Miscellaneous Tax Ruling MT 2030 (MT 2030). 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.

To illustrate the principles contained in paragraphs 11 to 23, paragraph 24 lists some examples of employees who will generally be regarded as living away from their usual place of residence.

The examples include oil industry employees living on offshore oil rigs.

In applying these guidelines to the facts it is accepted that the employees are living away from their usual place of residence as they only work on the oil rigs for a limited duration and return to their usual place of residence during the periods the employee is not working on the oil rig.

Conclusion

As all of the requirements of subsection 30(2) of the FBTAA are met, the allowance that is paid to the FIFO employees under the EBA agreement will be treated as a living-away-from-home allowance and not a travelling allowance.

As the allowance is a LAFHA and not a travelling allowance it is a fringe benefit, subject to tax under FBTAA.

Question 2

The taxable value calculation of a LAFH allowance paid to a fly-in fly-out employee.

The taxable value of a LAFHA paid to a FIFO employee is determined under section 31A of the FBTAA.

Subsections 31A(1) and 31A(2) of the FBTAA do not apply in your case, because the payment is not covered by subsection 30(1) of the FBTAA.

However, the fringe benefit is covered by 30(2) of the FBTAA as outlined in question 1 above, hence the taxable value is determined in accordance with section 31B of the FBTAA.

Section 31B Taxable Value - any other case

Subsection 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.

The calculation of the taxable value is then determined by subsection 31B(2) of the FBTAA:

Subsection 31B(2) of the FBTAA

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.

The allowance paid is subject to fringe benefits tax and there will be no reduction of this amount.

Declaration:

Section 31F of the FBTAA deals with declarations to be given to the employer by the employee.

For FIFO employees subsection 31F(b) of the FBTAA is applicable.

However, paragraph 31F(1)(b) is only applicable if the LAFHA's taxable value is calculated in accordance with subsection 31A of the FBTAA, which states that the LAFHA is covered under subsection 30(1) of the FBTAA.

The LAFHA paid by the employer is covered by subsection 30(2) of the FBTAA which makes paragraph 31F(1)(b) of the FBTAA inapplicable, hence FIFO employees receiving the LAFHA will not be required to give a declaration to the employer.

Conclusion

As all the requirements have been met for a LAFHA paid to employees who we have been determined to be FIFO employee, the taxable value will be the amount of the fringe benefit paid. The FIFO employee is not required to give a LAFHA declaration to the employer.

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