Edited version of your private ruling

Authorisation Number: 1012497508679

Ruling

Subject: Fringe Benefits Tax: Exempt Accommodation Expense Payment Benefits

Question 1

For the relevant periods, are the payments of the accommodation expenditure in the circumstances described in the ruling an exempt accommodation benefit under section 21 of the Fringe Benefits Tax Assessment act 1986?

Answer 1

Yes

Question 2

For the purposes of section 21 of the Fringe Benefits Tax Assessment act 1986 will the Commissioner exercise his discretion to allow a declaration by the employee after the date for lodgement of the 20XX FBT return?

Answer 2

Yes

Question 3

If the answer to question 1 is yes, would the payment of electricity, gas or other residential fuel costs provided in the accommodation be also exempt as part of the accommodation benefits?

Answer 3

No

Question 4

If you were to purchase a residential property and provided the employee accommodation in that property in similar circumstances described in the ruling, would the payment of the electricity and other residential fuel costs in relation to that property be exempt?

Answer 4

No

This ruling applies for the following period

1 July 2010 to 31 March 2013

The scheme commenced on

01 July 2010

Relevant facts and circumstances

As part of the operations you provide a 24 hour service to the public.

Your service requires someone to be available 24 hours 7 days a week for call outs and also to attend to situations.

Over time the volume of work needing your help has increased and you have found the need to accommodate one of your employees permanently next door to their workplace.

The provision of the accommodation to the employee would be in the form of an expense payment benefit. Residential fuel costs are also provided as part of the accommodation.

The employee sold their former residence after being required to relocate to the current accommodation.

There was no material change in the employment arrangement over a specified period of time.

At present the same employee is living in the accommodation. It is a highly specialised occupation with very little reward so until suitable candidates can be trained only the one employee will be filing the role. It is anticipated that this role will become rotational when other employees are suitably trained.

When other staff are suitably trained and ready to be rostered and the accommodation is eventually used on a rotational roster basis, the staff including the current employee filling the position now will return to their residence at the end of their roster.

When the rotational roster basis system is implemented it is expected the roster period would be monthly, quarterly or semi-annually.

The employer has plans already in place to introduce a rotational roster system in six months time as they expect employees will have been suitably trained and ready to start duties in six months.

For 20YY and 20ZZ FBT year the employee has provided a declaration that set out the employee's normal residence and the place at which the employee actually resided while living away from their normal residence

No declaration was provided for the 20XX FBT year and you request that the Commissioner accept a declaration now for this period.

A declaration was not obtained for the 20XX FBT year as you were not aware of the exemption requirements so you calculated and applied FBT for the 20XX FBT year and an employee contribution was made.

You are requesting a ruling for the following periods

1 July 2010-31 March 2011

1 April 2011-31 March 2012

1 Apr11 2012-31 March 2013

1 Apr11 2013 - cover all future periods (import ant for when rotational roster established)

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986, Section 20

Fringe Benefits Tax Assessment Act 1986, Section 21

Tax Laws Amendment (2012 Measures No. 4) Act 2012 Sch 1 Subsection 27(2)

Fringe Benefits Tax Assessment Act 1986, Section 31

Fringe Benefits Tax Assessment Act 1986, Section 31C

Fringe Benefits Tax Assessment Act 1986, Section 31C(a)

Fringe Benefits Tax Assessment Act 1986, Section 31D

Fringe Benefits Tax Assessment Act 1986, Subsection 31D(1)

Fringe Benefits Tax Assessment Act 1986, Subsection 31F

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

Reasons for decision

Question1

Detailed reasoning

One of the conditions for an accommodation expense payment benefit to be an exempt benefit under section 21 of the Fringe Benefits Tax Assessment act 1986 (FBTAA) is, the accommodation is required solely because the duties of that employment require the employee to live away from their normal residence. It is accepted that the employee is required to live at or adjacent to their workplace in order to perform their duties. Therefore it needs to be determined if the employee is living away from their normal residence (i.e. living away from home).

Is the employee living away from home?

Section 136 FBTAA defines 'normal residence' as:

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; 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.

Miscellaneous Taxation Ruling MT 2030-Fringe benefits tax: living-away-from-home allowance benefits (MT 2030) contains guidelines for determining the circumstances in which an employee will be considered to be living away from his or her usual place of residence during the relevant period.

Usual place of residence

"Place of residence" is defined in section 136. It means, in relation to a person, a place at which the person resides or a place at which the person has sleeping accommodation, whether on a permanent or temporary basis and whether or not on a shared basis.

Paragraphs 14, 20, 29, 33, 34, 44 and 45 state:

14. As the decisions illustrate, the question whether an employee is living away from his or her usual place of residence normally involves a choice between two places of residence, i.e., the place where the employee is living at the time or some other place. 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. This would be relevant even if the employee is living in temporary quarters close to a temporary job site. Reference is made to the following decisions by way of illustration.

Your employee but for having to change their residence temporarily in order to carry out their employment duties, would have continued to live at their former place. The employee will be returning to their own place of residence when the roster system is introduced.

20. 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. For example, a construction worker having to travel to a construction site to live and work would be in this category unless he had abandoned the former place of residence upon moving to the locality of the site. A case of the latter situation would be where the employee decided to permanently leave the former home, e.g., if a resident of Sydney, on obtaining a job for two years on a construction site in a remote part of Western Australia, decided to "sell up" in Sydney and move permanently to Western Australia to live.

Your employee moved to their current accommodation to take up a position of limited duration with an intention to return to their own place when the rotational roster system is introduced. The employee sold their usual place of residence only because the period of time away extended longer than anticipated and not because of permanent move.

29. Another question that has been raised is the extent to which it is necessary, before an employer may treat an allowance as a living-away-from-home allowance, to establish whether the employee does in fact have a residence at a place other than the locality at which the employee is temporarily residing.

30. The Act does not express a requirement, for a person to qualify as having a "usual place of residence", that it be established that he or she actually have such a residence. If the employee is one of a class of employees, (e.g., diplomats posted overseas, foreign experts employed in Australia, construction workers at a remote construction site, etc.) who could reasonably be expected by the employer to satisfy the tests set out in paragraphs 11-25 of living away from the usual place of residence, and the allowance is paid to compensate for additional costs (as explained in paragraph 28) that the employees could be expected to incur through having to live away from home, the allowance will constitute a living-away-from-home allowance in terms of section 30.

33. While an employee eligible to make such a declaration would ordinarily be able to indicate that residential premises are being kept at the place where he or she usually resides, that may not always be the case. For example, for financial reasons an expatriate coming to Australia to work for a limited but substantial period may have terminated the lease on a house, flat or apartment where he or she lived in the home country intending to release it or lease another home on return. Similarly, a home could have been sold with the intention of acquiring another. Provided the tests set out in paragraphs 11-25 are satisfied and the expatriate intends to return to the same city or district to live upon resuming residence in the home country, he or she would be entitled to declare that his or her usual place of residence is that city or district.

34. Similar principles would apply in relation to say an Australian resident temporarily employed abroad or an employee transferred for a fixed term from one State in Australia to another or from a city to a rural district, or vice versa.

As the above MT 2030 paragraphs show before changes were made to the concessional treatment of living away from home benefits commencing 01 October 2012, the FBTAA did not express a requirement, for a person to qualify as having a "usual place of residence", that it be established that he or she actually have such a residence. Your employee sold their house for economic reasons after being requited to move to their current accommodation away from their former home. When the roster system is introduced the employee will be expected to have their own usual place of residence to return to at the end of his roster.

The employee has a usual place of residence as defined in section 136 of the FBTAA, and explained in MT 2030, where he will return to when not required to live at or adjacent to their workplace to perform their duties. Therefore, they are considered to be living away from their usual place of residence when residing at their current accommodation.

The other conditions for an accommodation expense payment benefit to be an exempt accommodation expense payment benefit under section 21 of the FBTAA before the amended section 21 of the FBTAA took effect from 1 October 2012 were:

· the benefit was provided to a current employee in respect of the employment of that employee

· the employee's expenditure was in respect of accommodation for eligible family members

· the accommodation was not provided while the employee was undertaking travel in the course of performing his/her employment duties

· the employee gave an appropriate declaration to the employer as set out in section 31 of the FBTAA to the employer

From the facts provided with your private ruling application, and as it has been determined that the employee was living away from their usual place of residence when required to live at or adjacent to their workplace, for the period before 1 October 2012 all conditions for exemption under section 21 of the FBTAA for exemption have been met. Therefore for the period before 1 October 2012 the accommodation expense payment benefits were exempt accommodation expense payment benefits.

The law was amended, in respect of the period from 1 October 2012, and there is now an additional condition that must be met under section 21 of the FBTAA before the accommodation expense payment benefit will be an exempt accommodation expense payment benefit. The additional condition in paragraph (d) of section 21 states:

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

In your situation only subparagraph (d)(i) of section 21 of the FBTAA is applicable.

Note also the wording of the appropriate declaration under 31F of the FBTAA has changed. Examples of the appropriate living away from home declarations can be found on the ATO website at www.ato.gov.au

Section 31C FBTAA is satisfied 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;

According to subsection 31D(1) FBTAA, the employee satisfies section 31D if:

…the fringe benefit relates only to all or part of the first 12 months that the duties of that employment require the employee to live away from the place in Australia where he or she usually resides when in Australia.

Transitional rules

There are however transitional provisions which if applicable have the effect that the additional condition imposed by section 21 of the FBTAA referred to above may not apply until a specified time after 1 October 2012. However, the additional condition will need to be satisfied for all taxpayers from 1 July 2014.

The transitional rules may apply to employment arrangements in respect of living-away-from-home allowances and benefits in place prior to Budget time at 7.30pm (AEST) on 8 May 2012.

Paragraph 1.62 of the Explanatory Memorandum to the Tax Laws Amendment (2012 Measures No. 4) Act 2012 (EM) states that the transitional rules apply to:

· Employees who are permanent residents with employment arrangements in place prior to 7:30pm (AEST) on 8 May 2012 (Budget time); and

· The employment arrangement was not materially varied or renewed between Budget time and 1 October 2012.

The legislation for the transitional arrangements is in Part 3 of Schedule 1 to the Tax Laws Amendment (2012 Measures No. 4) Act 2012. Specifically, subsection 27(1) of that Part states that:

(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.

The transitional period means the period:

(a) starting on 1 October 2012; and

(b) ending at the earliest of:

(i) 30 June 2014; and

(ii) The time the eligible employment arrangement referred to in paragraph (1)(a) or (2)(b) ends; and

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

Your employee's current living away from home employment arrangement commenced in 20VV, the employee is a permanent resident and there has been no material change in the employment arrangement, consequently the transitional rules will apply to the expense payment benefit in respect of the accommodation expenditure provided to the employee.

That is during the transitional period, the employee is not required to maintain a normal residence in Australia that they are required to live away from to carry out employment duties and the exemption is not limited 12 months. Specifically, the employee does not have to satisfy the additional condition in the amended section 21 of the FBTAA, the condition in 21(d).

The transitional period means the period:

(a) starting on 1 October 2012; and

(b) ending at the earliest of:

(iv) 30 June 2014; and

(v) The time the eligible employment arrangement referred to in paragraph (1)(a) or (2)(b) ends; and

(vi) The first time that eligible employment arrangement is varied in a material way or renewed

Therefore the accommodation expense payment benefits provided for the transitional period 01 October 2012 to 31 March 2013 qualify as exempt accommodation expense payment benefits since the conditions for exemption as set out in the amended section 21 FBTAA taking effect from 01 October 2012 were satisfied except for paragraph 21(d) FBTAA, which does not need to be satisfied during the transitional period.

For the FBT year ending 31 March 2014 and later years, you would have to reapply for a new PBR providing the changed facts resulting from the introduction of the roster rotational system as to who is required to live at or near their workplace.

Question 2

Detailed Reasoning

Subsection 136(1) of the FBTAA defines declaration date as:

in relation to an employer in relation to a year of tax, means the date of lodgement 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.

The requirement for declarations should not be ignored. However, the legislation clearly provides the Commissioner with discretion to extend the time for making of the declarations after the date of lodgement of the FBT return for the year in question.

It would be appropriate to use the discretion in cases where there are acceptable reasons for making the declaration late. It would be unreasonable that the employer, in their circumstances, pay more than the correct amount of tax where there were satisfactory reasons for the employer not obtaining the declaration by the due date.

In the specific circumstances of this case, it is considered that it would be appropriate for the Commissioner to exercise his discretion and extend the declaration date to accept a late declaration by the employee after the date for lodgement of the 20XX FBT return for the following reasons:

The employee had not provided a declaration for the 20XX FBT year because the employer was not at that time aware of the exemption available under section 21 FBTAA and so did not request the employee to provide a declaration. Instead, the employer calculated and FBT for the 20XX FBT year and an employee contribution was made. The employer was not therefore being intentionally non compliant. The employer was not trying to obtain a tax benefit without the relevant declarations being provided.

Questions 3 and 4

Detailed Reasoning

Generally the payment of utility costs (e.g. electricity, gas, water) and other expenses associated with exempt accommodation under section 21 FBTAA do not fall within the scope of the exemption in respect of the accommodation.

In some circumstances the cost of the utilities cannot be dissected from the cost or value of the accommodation - such as in the case of a serviced apartment (in a hotel, motel) or campsite style accommodation. Generally, if utility costs cannot be dissected or determined separately from the lease or licence of accommodation, they will form part of the accommodation cost. In these circumstances fuel costs may fall within the scope of the exemption in respect of the accommodation.

In other arrangements, however, the utilities may be billed separately and will be provided as an expense payment or residual benefit that will not be exempt.

In your circumstances based on the information provided the accommodation is not of a serviced apartment type accommodation and therefore the residential fuel costs provided are identifiable separately from the cost or value of the accommodation.

Accordingly, the provision of residential fuel costs are not exempt benefits and will give rise to fringe benefits.

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