Edited version of your private ruling

Authorisation Number: 1012473585463

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Ruling

Subject: Benefits provided to Project workers

Question 1

Will a fringe benefit arise from the accommodation provided to the employees working on the Project?

Answer

Yes

Question 2

Can the taxable value of the fringe benefit that arises from the provision of accommodation to the employees working on the Project be reduced by the application of section 52 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 3

Will a fringe benefit arise from the meal and incidentals allowance paid to the employees working on the Project?

Answer

No

Question 4

If the meal and incidental allowance is equivalent to, or less than, the reasonable amounts for travel allowance expenses under Taxation determination TD 2010/19, Taxation Determination TD 2011/17 and Taxation Determination TD 2012/17, is the amount of the allowance required to be shown on the employees' Payment Summaries?

Answer

Yes

Question 5

Will a fringe benefit arise from the flights between the employee's usual place of residence and Project work site?

Answer

Yes

Question 6

Can the taxable value of the fringe benefit that arises from the provision of flights between the usual place of residence and Project work site be reduced by the application of section 52 of the FBTAA?

Answer

No

This ruling applies for the following periods

1 April 20XX - 31 March 20YY

1 April 20XX - 30 September 20YY.

The scheme commences on

1 April 20XX.

Relevant facts and circumstances

This ruling relates to employees working on a Project.

The employees worked on a 2 weeks rostered on/ 1 week off rotational basis.

The rostered on period did not include any rest days.

The usual place of residence of all of the employees working on the Project is in a city.

You flew the employees between their usual place of residence and the Project work site.

On completion of the Project, no employees remained at The Project work site.

The employees did not have a choice with respect to their accommodation and generally were required to vacate the accommodation upon completion of their rostered period.

The employees were not permitted to have their family stay with them in accommodation provided by you whilst rostered on for work. However, on occasions family members could travel to stay with employees in the accommodation during the rostered off period. When this occurred the employees were required to pay for the accommodation during the off period.

No employee spent more than 10 months at the work site.

All the employees were subject to the terms and conditions of the agreements.

You provided a copy of the agreements.

At the Project work site airport there are a couple of cars left, which the employees can drive. Usually some employees go to collect bulk transport such as buses in order to drive back to the airport to pick up other employees and take them to the accommodation in the Project work site.

Your employees are required to travel between the provided accommodation and Project work site by car, bus, truck or hire bus.

During their shifts, your employees garage their transport overnight at their accommodation in The Project work site.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 7

Fringe Benefits Tax Assessment Act 1986 section 8

Fringe Benefits Tax Assessment Act 1986 section 25

Fringe Benefits Tax Assessment Act 1986 section 30

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 subsection 47(5)

Fringe Benefits Tax Assessment Act 1986 subsection 47(6)

Fringe Benefits Tax Assessment Act 1986 section 52

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1936 section 23L

Income Tax Assessment Act 1936 section 51A

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-15

Income Tax Assessment Act 1997 section 6-23

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 subsection 15-2(1)

Income Tax Assessment Act 1997 subsection 900-15(1)

Income Tax Assessment Act 1997 section 900-30

Income Tax Assessment Act 1997 section 900-50

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

Tax Laws Amendment (1012 Measures No. 4) Act 2012 (142 of 2012).

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

1. Did a fringe benefit arise from the accommodation provided to the employees working on the Project?

The term 'fringe benefit' is defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to mean a benefit:

(a) provided at any time during the year of tax;

(b) provided in respect of the year of tax;

being a benefit provided to the employee or to an associate of the employee by;

(c) the employer; or

(d) an associate of the employer; or

(e) a person (in this paragraph referred to as the "arranger") other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between:

(i) the employer or an associate of the employer; and

(ii) the arranger or another person; or

(ea) a person other than the employer or an associate of the employer, if the employer or an associate of the employer:

(i) participates in or facilitates the provision or receipt of the benefit; or

(ii) participates in, facilitates or promotes a scheme or plan involving the provision of the benefit;

and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;

in respect of employment of the employee, ..

The definition goes on to provide that a benefit that comes within paragraphs (f) to (s) of the fringe benefit definition will not be a fringe benefit.

Therefore, a fringe benefit arose if the following criteria were satisfied:

(a) a benefit was provided

(b) the benefit was provided to the employee or an associate of the employee

(c) the benefit was provided by:

· the employer;

· an associate of the employer; or

· a person, other than the employer or an associate of the employer under an arrangement, or a situation that comes within paragraph (ea) of the fringe benefit definition

(d) the benefit was provided in respect of the employment of the employee; and

(e) the benefit is not listed under paragraphs (f) to (s) of the definition of fringe benefit.

(a) Was the provision of accommodation a benefit?

The term 'benefit' is defined in subsection 136(1) of the FBTAA, which states:

"benefit" includes any right(including a right in relation to, an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under …

As the provision of accommodation involves the provision of a right to use a unit of accommodation, the provision of accommodation was a benefit.

(b) Was the accommodation provided to an employee?

The accommodation was provided to employees.

(c) Was the accommodation provided by one of the providers listed in the fringe benefit definition?

As you provided the accommodation, it was provided by one of the listed providers.

(d) Was the accommodation provided in respect of the employment of the employee?

As the accommodation was provided under the terms of the employment agreement it was provided in respect of the employment of the employees.

(e) Was the benefit one of the benefits listed under paragraphs (f) to (s) of the definition of fringe benefit?

For the purposes of this Ruling, the relevant paragraph to consider is paragraph (g), which states:

a benefit that is an exempt benefit in relation to a year of tax;

Subsection 47(5) of the FBTAA provides that accommodation provided by an employer to an employee can be an exempt benefit where certain conditions are met.

Subsection 47(5) of the FBTAA was amended by the Tax Laws Amendment (2012 Measures No. 4) Act 2012 (142 of 2012), but only where an employee lives away from his or her normal residence after 1 October 2012. As the Project was completed prior to 1 October 2012, the relevant version of subsection 47(5) is the former subsection 47(5) of the FBTAA, which stated:

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;

(b) the unit of accommodation is for the accommodation of eligible family members and is provided solely 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;

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

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

(A) the employee's usual place of residence and

(B) the place at which the employee actually resided while living away from his or her usual place of residence;

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

In general terms, subsection 47(7) which is referred to in subparagraph 47(5)(d)(i) provides an exemption for transport provided to fly-in fly-out employees between their usual place of employment and usual place of residence where the usual place of employment is on an oil rig or other installation at sea, in a remote area, or overseas. As the usual place of employment is not on an oil rig at sea, in a remote area or overseas subsection 47(7) will not apply to the transport provided to the employees. Therefore, the provision of accommodation was an exempt benefit if the following conditions were met:

(i) the benefit was a residual benefit consisting of the provision of accommodation;

(ii) the accommodation was provided as the employee was required to live away from their usual place of residence;

(iii) the accommodation was not provided while the employee was travelling while performing their employment duties, and

(iv) the employee provided a declaration in the approved form.

(i) Was the benefit a residual benefit?

In general terms, the provision of accommodation to an employee will be a residual benefit if the accommodation is not the employee's usual place of residence. As the usual place of residence of the employees is not the work site this requirement is met.

(ii) Was the accommodation provided as a result of the employee being required to live away from their usual place of residence?

As the employees were required to reside at the work site during their rostered work period it is accepted that they were required to live away from the usual place of residence.

(iii) Was the accommodation provided whilst the employees were travelling?

Guidance for determining whether the employees are travelling is provided in paragraphs 35 to 43 of Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits. Paragraphs 37 to 43 state:

37. Unlike living-away-from-home allowances, there is generally no change of employment location in relation to the payment of travelling allowances. While the expenses that they are intended to compensate for may be similar - meals and accommodation, etc., - the circumstances in which the allowances are paid are essentially different.

38. A living-away-from-home allowance is paid where the employee has moved and taken up temporary residence away from his or her usual place of residence so as to be able to carry out employment duties for a time at the new (but temporary) workplace. A travelling allowance, on the other hand, is paid because the employee is travelling in the course of performing his or her job. In the former case, there is a change of job location and an actual change of residence to a place at or near that location. In the latter, the employee does not change job locations but simply travels in order to carry out the requirements of the job.

39. Travelling allowances are often paid for comparatively short periods, exceptions being allowances paid where the employment is inherently itinerant in nature or where travelling is a regular incident of the occupation, e.g., commercial travellers, travelling entertainers, etc. Academics studying on sabbatical leave have also been held to be travelling in the course of their employment rather than living away from home and thus could receive a travelling allowance over an extended period of time.

40. The nature of an allowance is not to be determined by reference solely to the period for which it is paid. As mentioned, a travelling allowance might be paid to a commercial traveller almost continuously throughout the year whereas another employee may receive a living-away-from-home allowance only for a month or so.

41. There will be circumstances, however, when an employee is away from his or her home base for a brief period in which it may be difficult to conclude whether the employee is living away from home or travelling. As a practical general rule, where the period away does not exceed 21 days the allowance will be treated as a travelling allowance rather than a living-away-from-home allowance. For longer periods, it will be necessary to determine the nature of the allowance with the guidance provided by this Ruling.

42. An employee travelling in the course of employment ordinarily would not be accompanied by his or her spouse and family. On the other hand, it is more common for the spouse and children of an employee who has temporarily changed job locations and is living away from the usual place of residence to have his or her family living at the new location.

43. That is not to say that an unaccompanied employee should always be treated as travelling and an accompanied one regarded as living away from home. While those factors might be indicative of the nature of the employee's absence, the tests for determining the purpose of an allowance are as previously explained. To illustrate the point, an employee who lives during the working week in the country town where his permanent job is located but who travels perhaps several hundred kilometres to live during weekends with his wife and children in the family home located in another town would be, during the week, living away from home. So, too, would a married public servant based in a capital city who is seconded for six months to carry out a special task interstate in circumstances where his family stays behind in the family home. It is not where the family is that determines the nature of the allowance but where the employee is in relation to the usual place of residence and whether, on the facts, the employee can be said to be travelling on the job or living away from home.

In applying these guidelines, the accommodation and allowance is being paid to enable the employees to carry out duties for a time at a new (but temporary) workplace. That is, there is a change in the job location and a change in residence to be near the job location. It is not a situation where the employee is travelling while performing their employment duties. Although the employees are not accompanied by their spouse and family, their situation is comparable with the situations described in paragraph 43 of MT 2030. Therefore, the employees are considered to be living away from home, rather than travelling.

Support for this conclusion is provided by sub paragraph 47(5)(d)(i) which enables the exemption to apply to fly-in fly-out employees who work on an oil rig, in a remote area or overseas without the need for the employee to provide a declaration. The inclusion of this sub paragraph indicates the employees are not travelling as if they were, there would be no need for sub paragraph 47(5)(d)(i).

(iv) Were the declarations provided in the approved form?

Sub paragraph 47(5)(d)(ii) requires the declaration to be given to the employer before the declaration date.

'Declaration date' is defined in subsection 136(1) to mean:

… the date of lodgment of the return of the fringe benefits taxable amount of the employer of the year of tax, or such later date as the Commissioner allows.

Although your application does not indicate whether the declarations were obtained by the declaration date, the reference to the benefit being an exclusive residual benefit is an indication the relevant declarations were not obtained.

Therefore, on the basis the declarations were not obtained the provision of accommodation will not be an exempt benefit under subsection 47(5). However, if declarations were obtained the provision of accommodation will be an exempt benefit under subsection 47(5).

1. Can the taxable value of the fringe benefit that arises from the provision of accommodation to the employees working on the Project be reduced by the application of section 52 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

In general terms, the taxable value of a residual benefit can be reduced by the amount the employee could have claimed as an income tax deduction if the employee had paid for the benefit.

Guidance for determining whether the employee could have claimed an income tax deduction was provided in Taxation Determination TD 93/230 Income tax and fringe benefits tax: is a camping allowance assessable under section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) or under Division 6 of the Income Tax Assessment Act 1936(ITAA)? and Taxation Determination TD 96/7 Fringe benefits tax: is fringe benefits tax (FBT) payable on meals and accommodation provided to employees who work at remote construction sites, where the accommodation is not the usual place of residence of the employee?

Both of these Taxation Determinations apply the decision of the Federal Court in Roads and Traffic Authority of NSW v Federal Commissioner of Taxation 26 ATR 76; 93 ATC 4508 (RTA). RTA concerned:

· the payment of a camping allowance paid to compensate for the disadvantageous conditions of living in camp and for additional food costs; and

· the application of the otherwise deductible rule in relation to the accommodation provided at various work sites.

In considering whether the camping allowance was paid for deductible expenses, Hill J at ATC 4521 said:

Where a taxpayer is required by his employer, and for the purposes of his employer, to reside, for periods at a time, away from home and at the work site, and that employee incurs expenditure for the cost of sustenance, or indeed other necessary expenditure which, if the taxpayer had been living at home, would clearly be private expenditure, the circumstance in which the expenditure is incurred, that is to say, the occasion of the outgoing operates to stamp that outgoing as having a business or employment related character.

Hill J then referred to the decision in Federal Commissioner of Taxation v Toms (1989) 20 ATR 466; 89 ATC 4373 (Toms) before stating at ATC 4522:

The facts of the present case are quite different. First, each of the persons deemed hypothetically to have incurred the expenditure are employees. They are not carrying on their own business. Second, they are required, as an incident of their employment, by their employer and for the purposes of the employer to live close by their work site for relatively short periods of time. No question arises of their choosing to live in these places. Each of the persons in question has a permanent house in which he lives when not in camp. None of the employees spend inordinate periods of time in the camps so that the camp becomes their home. Their house is retained and the employees in question travel home at weekends. They do not remain in the camps. The costs in question here are an incident of the employment. The costs in Toms were not.

Hill J then applied this consideration in considering the application of the otherwise deductible rule to the provision of camp accommodation. At ATC 4522 - 4523 Hill J said:

The scheme of the legislation, so far as it relates to the provision of accommodation of this kind for a limited period, is somewhat complicated. By force of s. 45, a benefit to an employee will be a ``residual benefit'', if not otherwise within the specified categories of benefits enumerated in Sub-division A of Divisions 2-11 of the Act. Clearly the present benefit is of that kind. Because the benefit is provided only in respect of, or during a period, it is a ``period'' residual fringe benefit as defined in s. 136(1) of the Act. Having regard to the definition of ``external period residual fringe benefit'' in s. 136(1) as meaning a period fringe benefit other than an in-house residual fringe benefit, it is clear that the benefit will be an ``external period residual fringe benefit'', it not being an ``in-house residual fringe benefit'' as defined in the same sub-section.

The taxable value (``TV'') of the ``external period residual fringe benefit'' will be determined by s. 51 of the Act. … However, the provisions of s. 52 of the Act, if satisfied, operate to reduce the taxable value.

The critical question, therefore, is whether the assumed gross expenditure by the recipient, that is to say the amount that an employee would have had to pay to provide the benefit for himself, would have been a once only deduction, that is whether a percentage of the expenditure could be deducted in a single year and no percentage of the expenditure could be deducted in any other year. There is thus raised the same issues in relation to accommodation as were raised in relation to whether the camping allowances are living-away-from-home allowances, not being deductible expenditure. In other words, the question raised is whether, if the employees paid for their own caravan or hut accommodation at or near the work sites, they would have been entitled to deduct the whole of that cost under s. 51(1) of the ITA Act.

There is a further issue between the parties as to whether the provisions of s. 52(1)(c) apply. The applicant submits that it does not, since the fringe benefit is an ``exclusive employee residual benefit'', that is, a benefit where, if the recipient had incurred expenditure in respect of the provision of the recipient's benefit, that expenditure would have been exclusively incurred in gaining or producing salary or wages. The Commissioner submits, on the other hand, that the benefit is not an exclusive employee residual benefit because the hypothetical expenditure would not have been exclusively incurred in gaining or producing salary or wages. Rather, it is said that it would have been incurred in meeting personal expenditure. Thus, the Commissioner's submission is that there would be need for each relevant employee to give to the applicant a declaration in a form approved for the purposes of s. 52(1)(c). Presumably that form has not been completed, at least in the majority of cases.

The Commissioner's submission that expenditure on accommodation represents expenditure on ordinary living expenses and hence is private or domestic in a case such as the present, misconceives the issue. For the reasons already given, an employee who is required as part of his employment to reside at the work site for periods of time and to bear the cost of his own accommodation, in circumstances where he has his own private house, will be entitled to a deduction for the cost of that expenditure.

On the evidence, employees are sent to work away from their home generally for short periods of time and are told that they may be required to move from place to place. They are not told that their employment in a particular place is indefinite. In the circumstances, there seems little scope for an inference that living at a camp or caravan, as the case may be, is a choice made by the employee. Rather, it is an incident of the employment of that employee and if the cost were incurred by him would be a deductible outgoing under s. 51(1) of the ITA Act.

In applying this decision, the otherwise deductible rule will apply to the provision of accommodation where the employee:

· is required as part of his or her employment to reside close to the work site;

· has a permanent residence away from the work site;

· lives away from home for a relatively short period of time; and

· does not have a choice as to the location of the accommodation provided.

In considering the circumstances of your employees;

· they are required to reside close to the work site;

· they have a usual place of residence away from the work site;

· they are away from the usual place of residence for a short period of time; and

· they do not have a choice as to the location of the accommodation that is provided.

Therefore, for the reasons discussed by Hill J in RTA, the otherwise deductible rule will apply to reduce the taxable value of the residual fringe benefit that arises from the provision of accommodation to a nil value.

2. Will a fringe benefit arise from the meal and incidentals allowance paid to the employees working on the Project?

In accordance with the terms of the employment agreement the employees received an allowance for meals and incidentals.

The general taxation treatment of an allowance is set out in of Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement. Paragraph 1 of TR 92/15 states:

Other than living-away-from-home allowances, most allowances will fall for consideration under the ITAA. On the other hand, most reimbursements will fall for consideration under the FBTAA.

Therefore, in considering whether a fringe benefit will arise from the payment of the allowance it is necessary to consider whether the allowance is a living-away-from-home allowance.

Section 30 of the FBTAA sets out the circumstances in which an allowance will be a living-away-from-home allowance. Prior to 30 September 2012 subsection 30(1) stated:

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

(b) it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for:

(i) additional expenses (not being deductible expenses) incurred by the employee during a period; or

(ii) additional expenses (not being deductible expenses) incurred by the employee, and other additional 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, 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.

On the basis of the above discussion it is accepted that:

· the payments are an allowance;

· the payments are for additional food and other incidental costs to which the employee is subject; and

· the additional food and incidental costs are a result of the employees being required to live away from their usual place of residence while undertaking their employment duties on the Project.

However, for the reasons discussed above in relation to the provision of accommodation the cost of the meals is a deductible expense on the basis of the decision in RTA. As the food expenses for which the allowance is paid were deductible expenses, the allowance will not be a living-away-from-home allowance.

Therefore, as the allowance is not a living-away-from-home allowance it will not be a fringe benefit. This is because the allowance will come within the definition of salary or wages which are excluded from being a fringe benefit by paragraph (f) of the fringe benefit definition.

3. If the meal and incidental allowance is equivalent to, or less than, the reasonable amounts for travel allowance expenses under Taxation Determination TD 2010/19, Taxation Determination TD 2011/17 and Taxation Determination TD 2012/17, is the amount of the allowance required to be shown on the employees' Payment Summaries?

As the allowance received by your employees is not a living-away-from-home fringe benefit, it will form part of their assessable income.

Generally, an allowance which forms part of an employee's assessable income will need to be shown on the employee's Payment Summary. However, there are some exceptions.

These exceptions are summarised in a table contained in the ATO publication PAYG withholding Withholding from allowances. This publication contains the following two tables:

· Table 1 which lists the various types of allowances that an employee might receive and describes how these allowances must be treated; and

· Table 2 which lists those allowances which are subject to a varied rate of withholding and explains whether they are required to be reported on the Payment Summary.

Table 1 includes allowances for expected deductible expenses. It provides that employers are required to withhold from these allowances and are required to show the amount of the allowance on the employee's Payment Summary.

Table 2 includes a domestic or overseas travel allowance involving an overnight absence from the employee's ordinary place of residence. It provides that employers who pay such an allowance which is equivalent to, or less than the amount specified in the relevant Taxation Determination are not required to withhold from the allowance and are not required to show the amount of the allowance on the employee's Payment Summary.

In your ruling application you contend the meal and incidental allowance is a travel allowance. In considering this contention it is necessary to refer to the guidance provided in Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses. Paragraphs 53 to 62 of TR 2004/6 set out the requirements that must be met for an allowance to be considered to be a travel allowance that comes within Table 2. These paragraphs state in part:

Must sleep away from home

53. For domestic or overseas travel allowance expenses to be considered for exception from substantiation, the relevant allowance must qualify as a travel allowance. The allowance must be paid to cover work-related travel expenses incurred or to be incurred for travel away from the employee's ordinary residence, undertaken in the course of performing duties as an employee (subsection 900-30(3) of the ITAA 1997). The Commissioner takes the view that the term 'travel away from the employee's ordinary residence' means that the employee must sleep away from their home.

Must cover cost of accommodation, food or drink, or incidentals

54. The travel allowance must be paid to cover the cost of accommodation (domestic travel only) or food or drink or expenses incidental to the travel (paragraph 900-30(3)(b) of the ITAA 1997).

Must cover specific journeys

56. The travel allowance must be paid for specific journeys undertaken or to be undertaken for work-related travel. A travel allowance that is not paid to cover relevant expenses for specific journeys undertaken or to be undertaken for work-related travel, is not a travel allowance for the purposes of the exception from substantiation.

Must be paid as an allowance

59. An amount for travel expenses that has been folded-in as part of normal salary/wages, for example under a workplace agreement, is not considered to be an allowance.

Must be for a bona fide travel allowance

60. For the substantiation exception to apply, the allowance must be a bona fide travel allowance. That is, the amount paid must be an amount that could reasonably be expected to cover accommodation, or meals or expenses incidental to the travel.

A 'bona fide travel allowance' is defined in paragraph 86 of TR 2004/6 as follows:

A 'bona fide travel allowance' is an amount that could reasonably be expected to cover accommodation, or meals or expenses incidental to travel. This does not require that the amount paid by the employer must equate dollar for dollar to the employee's actual expenditure. However there must be relativity between the quantum of the travel allowance and the purpose for which it is said to be paid. A token amount, or a general payment, is not a bona fide travel allowance. In this context the words 'cover' and 'covered' refer to the nature of the expenses for which the allowance is provided that is the subject matter to be dealt with by the allowance paid, namely accommodation and applicable meal expenses. (See Re McIntosh and F.C. of T. [2001] AATA 702; 47 ATR 1242).

Both paragraph 53 and the definition of a bona fide travel allowance in paragraph 86 require the expenses to which the allowance relates to be incurred for travel away from the employee's ordinary residence in the course of performing duties as an employee. This requirement comes from subsection 900-30(3) of the Income Tax Assessment Act 1997 (ITAA 1997) which states:

A travel allowance is an allowance your employer pays or is to pay to you to cover losses or outgoings:

(a) that you incur for travel away from your ordinary residence that you undertake in the course of your duties as an employee; and

(b) that are losses or outgoings for accommodation or for food or drink, or are incidental to the travel.

The travel may be within or outside Australia.

Therefore, for the allowance to qualify as a travel allowance that comes within Table 2 the expenses for which the allowance is paid must be incurred in the course of undertaking travel in the course of performing their duties of employment.

As discussed above in part (e)(iii) of the answer to question 1 and below in the answer to question 6, the employees are not undertaking travel in the course of performing their duties of employment. Rather, they are living away from home while undertaking their employment duties. Therefore, the allowance is not considered to be a travel allowance that comes within Table 2.

Rather, the allowance is an allowance for deductible expenses that comes within Table 1 and is required to be shown on the employees' Payment Summaries.

4. Will a fringe benefit arise from the flights between the employee's usual place of residence and the Project work site?

Under the Agreement, you were required to provide the employees with a return economy flight between the Project work site and the usual place of residence at the completion of their roster.

As detailed above in the answer to question 1, a fringe benefit will arise if the following criteria are satisfied:

(a) a benefit was provided

(b) the benefit was provided to the employee or an associate of the employee

(c) the benefit was provided by:

· the employer;

· an associate of the employer; or

· a person, other than the employer or an associate of the employer under an arrangement, or a situation that comes within paragraph (ea) of the fringe benefit definition

(d) the benefit was provided in respect of the employment of the employee; and

(e) the benefit is not listed under paragraphs (f) to (s) of the definition of fringe benefit.

(a) Was a benefit provided?

As detailed above in the answer to question 1, the term 'benefit' is defined in subsection 136(1) of the FBTAA, to include any right, privilege, service or facility.

The flights come within this definition.

(b) Will the benefit provided be to an employee?

The flights are provided to employees.

(c) Will the benefit be provided by one of the listed providers?

As you are providing the benefit, it is provided by one of the listed providers.

(d) Will the benefit provided be in respect of the employment of the employee?

As the flights are provided under the terms and conditions of the employment agreement they are provided in respect of the employment of the employees.

(e) Will the benefit be one of the benefits listed under paragraphs (f) to (s) of the definition of fringe benefit?

For the purposes of this Ruling, the relevant paragraph to consider is paragraph (g), which states:

a benefit that is an exempt benefit in relation to a year of tax;

The relevant exemption to consider is the exemption contained in subsection 47(7). As discussed above in the answer to question 1, subsection 47(7) provides an exemption for transport provided to fly-in fly-out employees between their usual place of employment and usual place of residence where the usual place of employment is on an oil rig or other installation at sea, in a remote area, or overseas. As the usual place of employment is not on an oil rig at sea, in a remote area or overseas subsection 47(7) will not apply to the transport provided to the employees.

As none of the other exemptions apply to the flights a fringe benefit will arise from the flights.

6. Can the taxable value of the fringe benefit that arises from the provision of flights between the usual place of residence and the Project work site be reduced by the application of section 52 of the FBTAA?

In general terms, the taxable value of a residual benefit can be reduced by the amount the employee could have claimed as an income tax deduction if the employee had paid for the benefit.

The established authority on travelling expenses was summarised as follows by the High Court in Commissioner of Taxation v Payne [2001] HCA 3, 202 CLR 93, 2001 ATC 4027, 46 ATR 228 (Payne) at ATC 4030 - 4031:

Established authority on travelling expenses

12. The application of s 51(1) to expenses incurred in travelling between a taxpayer's place of residence and a place where income is derived has long been regarded as settled. Such expenses are not deductible. In the leading decision on that question in this Court, Lunney v FC of T Dixon CJ said that the question had then ``been accepted as settled for the last two generations''. Having referred to two earlier decisions which were said to have settled the question, Dixon CJ said:

``... To escape from the course of reasoning on which the decisions proceed requires the taking of refined and rather insubstantial distinctions. I confess for myself, however, that if the matter were to be worked out all over again on bare reason, I should have misgivings about the conclusion. But this is just what I think the Court ought not to do. It is a question of how an undisputed principle applies. Its application was settled by old authority long accepted and always acted upon. If the whole subject is to be ripped up now it is for the legislature and not the Court to do it.''

13. Three other members of the Court, Williams, Kitto and Taylor JJ, reached the same conclusion as Dixon CJ. In their joint reasons, their Honours made more extensive reference to the decisions of the Court in Ronpibon and Charles Moore & Co (WA) Pty Ltd v FC of T. Particular consideration was given to what is meant by ``in gaining or producing the assessable income'' and ``incurred in carrying on a business for the purpose of gaining or producing such income'' and to how those expressions apply to expenditures on travel between home and work. Their Honours concluded that ``to say that expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such expenditure is incurred in or in the course of gaining or producing his income''. That is, the majority in Lunney held that a taxpayer does not demonstrate that the first limb of s 51(1) is satisfied by demonstrating only that there is some causal connection between the expenditure and derivation of the income. What must be shown is a closer and more immediate connection. The expenditure must be incurred ``in the course of'' gaining or producing the assessable income.

Application of authority

14. When, as here, the travel is between two places of unrelated income derivation, the expense cannot be said to be incurred ``in the course of'' deriving income from either activity. As the majority of the Full Court recognised in this case:^[

``... The expenditure was incurred before [ the taxpayer] began to perform his duties as a pilot, or after he had fulfilled those duties. Similarly, in relation to the deer farming business.''

The expenditure was, as the majority of the Full Court rightly said, ``not incurred in the course of his employment as a pilot, nor in the course of his deer farming business''. The taxpayer's travel occurred in the intervals between the two income-producing activities. The travel did not occur while the taxpayer was engaged in either activity. To adopt and adapt the language used in Ronpibon, neither the taxpayer's employment as a pilot nor the conduct of his business farming deer occasioned the outgoings for travel expenses.

These outgoings were occasioned by the need to be in a position where the taxpayer could set about the tasks by which assessable income would be derived. In this respect they were no different from expenses incurred in travelling from home to work.

This authority was previously set out in Taxation Ruling IT 112 Deductibility of travelling expenses between residence and place of employment. Paragraphs 2 to 5 of IT 112 state:

The decision of the Full Court of the High Court in the appeals of Lunney and Hayley v FC of T (1958) 100 CLR 478 affirmed a long-standing line of decisions that fares paid by taxpayers to enable them to go day by day to their regular place of employment or business and back to their home are not deductible against the assessable income earned by them from their employment or business.

In Lunney and Hayley the taxpayers were a ship's joiner and a dentist respectively. Neither taxpayer carried on income-producing activities at his home. Lunney had only one employment and he reported at the commencement and completion of each day's work to his employer's office at the waterfront from which he travelled (at his employer's expense) to various parts of the port of Sydney to carry out his work. He travelled daily by bus from his suburban residence to the city to report for work and to return home after work. Hayley carried on his profession from rooms in the city of Sydney and he travelled daily by train from his suburban residence to the city and return to pursue his professional practice.

Dixon C.J., Williams, Kitto and Taylor JJ. (with McTiernan J. dissenting) decided that the fares in each instance were not deductible under s.51. Williams, Kitto and Taylor JJ. said, at pages 498 and 499 -

"It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such expenditure is incurred in or in the course of gaining or producing his income. Whether or not it should be so characterised depends upon considerations which are concerned more with the essential character of the expenditure itself than with the fact that unless it is incurred an employee or a person pursuing a professional practice will not even begin to engage in these activities from which their respective incomes are derived."

In Lunney's case their Honours took the view that the expenditures were properly characterised as personal or living expenses rather than business expenses or expenses incurred in, or in the course of, earning assessable income. They said, at page 501 -

"Expenditure of this character is not by any process of reasoning a business expense; indeed, it possesses no attribute whatever capable of giving it the colour of a business expense. Nor can it be said to be incurred in gaining or producing a taxpayer's assessable income or incurred in carrying on a business for the purpose of gaining or producing his income; at the most, it may be said to be a necessary consequence of living in one place and working in another. And even if it were possible - and we think it is not - to say that its essential purpose is to enable a taxpayer to derive his assessable income there would still be no warrant for saying, in the language of s.51, that it was 'incurred in gaining or producing the assessable income' or 'necessarily incurred in carrying on a business for the purpose of gaining or producing such income.'"

The distinction between travel to work and on work was also made by Lord Wilberforce in Taylor v Provan 1975 AC 194, at 215 (Provan), where he said:

To do any job, it is necessary to get there: but it is settled that expenses to work cannot be deducted against the emoluments of the employment. It is only if the job requires man to travel that his expenses of that travel can be deducted, i.e. if he is travelling on his work, as distinct from travelling to his work. The most obvious category of jobs of this kind is that of itinerant jobs, such as a commercial traveller.

Therefore, for the otherwise deductible rule to apply to the transport it is necessary for the travel to be undertaken in the course of gaining or producing assessable income. It will not apply if the travel occurs prior to the employee commencing work, or after the employee has ceased his or her employment duties.

In the situation being considered, the employees have ceased their employment duties when they fly from the Project work site to the usual place of residence. Similarly, they have not commenced their employment duties when they return to the Project work site from the usual place of residence. Therefore, they can not be considered to be travelling on work. Rather, than being travel on work, the flights are undertaken to enable the employees to return to their usual place of residence during the period they are rostered off.

To be considered otherwise deductible in accordance with section 52 of the FBTAA, it is necessary that an item of expenditure meet the following requirements:

· the benefit that arises is a residual fringe benefit, and

· if the recipient had incurred the expense, it would have been allowable to the recipient.

While the benefit that arises is a residual fringe benefit, had the recipient incurred the expense, it would not have been an allowable deduction. You have therefore not met all of the requirements of section 52 of the FBTAA.

Therefore, as the flights involve private travel, the otherwise deductible rule in section 52 of the FBTAA will not apply to reduce the taxable value of the fringe benefit that arises from the provision of the flights to your employees.

Other transport provided to employees

In your ruling application you advised that in addition to the flights you also provided the following transport to employees:

· travel between the airport and provided accommodation by a bus that is also used to transport employees between the provided accommodation and the work site;

· travel between the provided accommodation and work site in a car that is garaged at the accommodation and available for private use;

· travel between the provided accommodation and work site in a vehicle that is not a car, but is available for private use; and

· travel between the provided accommodation and work site in a vehicle that is not a car and is not available for private use.

The treatment of this transport will vary depending upon the particular arrangement. Set out below is a summary of the various outcomes that may apply.

Travel by car

Subsection 7(1) of the FBTAA sets out the circumstances in which a car benefit will arise. Subsection 7(1) states:

Where:

(a) at any time on a day, in respect of the employment of an employee, a car held by a person (in this subsection referred to as the ``provider''):

(i) is applied to a private use by the employee or an associate of the employee; or

(ii) is taken to be available for the private use of the employee or an associate of the employee; and

(b) either of the following conditions is satisfied:

(i) the provider is the employer, or an associate of the employer, of the employee;

(ii) the car is so applied or available, as the case may be, under an arrangement between:

(A) the provider or another person; and

(B) the employer, or an associate of the employer, of the employee;

that application or availability of the car shall be taken to constitute a benefit provided on that day by the provider to the employee or associate in respect of the employment of the employee.

Subsections 7(2) and 7(3) set out the circumstances in which a car is taken to be available for the private use of the employee.

Subsection 7(2) states:

Where, at a particular time, the following conditions are satisfied in relation to an employee of an employer:

(a) a car is held by a person, being:

(i) the employer;

(ii) an associate of the employer; or

(iii) a person (other than the employer or an associate of the employer) with whom, or in respect of whom, the employer or an associate of the employer has an arrangement relating to the use or availability of the car;

(b) the car is garaged or kept at or near a place of residence of the employee or of an associate of the employee;

the car shall be taken, for the purposes of this Act, to be available at that time for the private use of the employee or associate, as the case may be.

In applying this subsection place of residence is defined in subsection 136(1) of the FBTAA to mean:

(a) a place at which the person resides; or

(b) a place at which the person has sleeping accommodation;

whether on a permanent or temporary basis and whether or not on a shared basis.

Subsection 7(3) states:

Where, at a particular time, the following conditions are satisfied in relation to an employee of an employer:

(a) a car is held by a person, being:

(i) the employer;

(ii) an associate of the employer; or

(iii) a person (other than the employer or an associate of the employer) with whom, or in respect of whom, the employer or an associate of the employer has an arrangement relating to the use or availability of the car;

(b) the car is not at business premises of:

(i) the employer;

(ii) an associate of the employer; or

(iii) a person (other than the employer or an associate of the employer) with whom, or in respect of whom, the employer or an associate of the employer has an arrangement relating to the use or availability of the car;

(c) any of the following conditions is satisfied:

(i) the employee is entitled to apply the car to a private use;

(ii) the employee is not performing the duties of his or her employment and has custody or control of the car;

(iii) an associate of the employee is entitled to use, or has custody or control of, the car;

the car shall be taken, for the purposes of this Act, to be available at that time for the private use of the employee or associate, as the case may be.

Therefore, the accommodation that is provided to the employees is a place of residence and a car fringe benefit will arise on any day when:

· the car is garaged at the provided accommodation; or

· the car is not at your business premises.

The calculation of the taxable value of these car fringe benefits will depend upon whether a logbook and odometer records are kept. If these records are kept and the operating cost method is used to calculate the taxable value of the car fringe benefits it may be possible to reduce the taxable value to take account of any business journeys undertaken in the car.

However, where the statutory formula method is used a car fringe benefit was taken to arise on every day that a car benefit was provided.

Travel in a motor vehicle that is not a car

In general terms, a residual benefit will arise when a motor vehicle that is not a car is used for private purposes. However, this private use will be an exempt benefit when the requirements of subsection 47(6) of the FBTAA are met.

Subsection 47(6) of the FBTAA states:

Where:

(a) a residual benefit consisting of the provision or use of a motor vehicle is provided in a year of tax in respect of the employment of a current employee;

(aa) the motor vehicle is not:

(i) a taxi let on hire to the provider; or

(ii) a car, not being:

(A) a panel van or utility truck; or

(B) any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers); and

(b) there was no private use of the motor vehicle during the year of tax and at a time when the benefit was provided other than:

(i) work-related travel of the employee; and

(ii) other private use of the motor vehicle by the employee or an associate of the employee, being other use that was minor, infrequent and irregular;

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

Work-related travel is defined in subsection 136(1) of the FBTAA to mean:

(a) travel by the employee between:

(i) the place of residence of the employee; and

(ii) the place of employment of the employee or any other place from which or at which the employee performs duties of his or her employment; or

(b) travel by the employee that is incidental to travel in the course of performing the duties of his or her employment.

Guidance for determining whether the travel can be considered to be use of a motor vehicle is provided in ATO Interpretative Decision ATO ID 2001/313 Fringe Benefits Tax: Exempt Residual Benefit. This ATO ID considered the situation of an employer that hired a bus to transport employees between the town in which they resided and the nearby mine site at the beginning and end of each shift. In concluding the use of the bus was an exempt residual benefit under subsection 47(6) of the FBTAA ATO ID 2001/313 stated:

. . .The word "use" has a broad meaning. It is not restricted to situations where the employee has control of a vehicle. While the facts that the bus carried a number of employees on a pre-organised route, at pre-organised times enables the benefit to be described as the provision of transport, they do not alter the fact that the benefit consisted of "the use of a motor vehicle". . ..

Your situation is similar to that described in ATO ID 2001/313. Therefore, in accordance with that decision the travel in a vehicle that is not a car (including the buses) will be exempt where the travel is limited to travel undertaken between the place of residence of the employee and the place at which the employee performs his or her duties of employment. This includes the travel undertaken to and from the airport in the Project work site as this forms part of the travel between the place at which the employee performs duties of employment and a place of residence.

However, the private travel will not be an exempt benefit under subsection 47(6) if the vehicle is available for private use.

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