Edited version of your private ruling

Authorisation Number: 1012508160174

Ruling

Subject: Living-away-from-home allowance

Question 1

Will the transitional provisions contained in items 27 and 28 of Tax Laws Amendment (2012 Measures No. 4) Act 2012 apply to the accommodation allowance paid to the employee in scenario A?

Answer

Yes.

Question 2

Will the allowance paid to your employee for dinner and incidental expenses in scenario B be a living-away-from-home allowance?

Answer

No.

Question 3

Will a fringe benefits tax liability arise from the reimbursement of the accommodation expenses in scenario B?

Answer

No provided the employee maintains the residence in the home city during the 47 day period and provides the relevant declaration.

This ruling applies for the following period

1 April 2013 - 31 March 2014

1 April 2014 - 31 March 2015.

Relevant facts and circumstances

You have provided facts for two scenarios:

Scenario A:

An employee was seconded to work in another branch for two years.

At the conclusion of the secondment the employee will return to his position and will recommence residing in a property that he owns near the branch he is employed in.

During the period of the secondment the employee will rent the property.

During the secondment you will pay your employee an accommodation allowance.

The employee's secondment was approved in December 2011.

A written agreement for the secondment was entered into in February 2012.

The employee commenced their duties after budget night in May 2012.

The secondment will conclude in May 2014.

The employee has provided a living-away-from-home allowance declaration for the year ended 31 March 2013.

The employee will provided a living-away-from-home allowance declaration of the year ended 31 March 2014.

Scenario B:

An employee is required to work in another branch for 47 days.

At the conclusion of the 47 day period the employee will resume working in their home branch.

During the period the employee is in the other branch the employee will receive:

· a food allowance, and

· an incidental allowance.

In addition, you will reimburse the employee's accommodation expenses.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 30

Fringe Benefits Tax Assessment Act 1986 section 31

Fringe Benefits Tax Assessment Act 1986 section 31A

Fringe Benefits Tax Assessment Act 1986 section 31B

Fringe Benefits Tax Assessment Act 1986 paragraph 31C(a)

Fringe Benefits Tax Assessment Act 1986 paragraph 31C(b)

Fringe Benefits Tax Assessment Act 1986 section 31D

Fringe Benefits Tax Assessment Act 1986 section 31E

Fringe Benefits Tax Assessment Act 1986 subsection 31F(1)

Tax Laws Amendment (2012 Measures No. 4) Act 2012.

Reasons for decision

1. Will the transitional provisions contained in items 27 and 28 of Tax Laws Amendment (2012 Measures No. 4) Act 2012 apply to the accommodation allowance paid to the employee in scenario A?

Your ruling request concerns the treatment of the allowances and reimbursement paid to two employees in the given scenarios.

In general terms, if the allowance is a living-away-from-home allowance the employer will be liable to pay any tax that arises from the payment of the allowance. By contrast, if the allowance is not a living-away-from-home allowance, generally it is the employee that will be liable to pay any tax that arises in relation to the allowance.

An allowance will be a living-away-from-home allowance when the conditions contained within section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) are met. Subsection 30(1) of the FBTAA states:

Where:

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

(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 duties of that employment require the employee to live away from his or her normal residence;

the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time.

In considering these conditions:

· the condition in paragraph (a) is met as the payment is a pre-determined amount that does not depend upon the expenses incurred by the employee. Therefore, in accordance with paragraph 2 of Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement (TR 92/15) the payment is an allowance; and

· the conditions in paragraph (b) are met as the allowance is being paid for accommodation expenses that are incurred by the employee as a result of the employee being required to reside in another city to perform the duties of employment during the period of the secondment. Given the period of the secondment, the accommodation expenses will not be deductible expenses.

Therefore, as the conditions in paragraphs 30(1)(a) and 30(1)(b) are met, the accommodation allowance will be a living-away-from-home allowance.

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

Subsection 31(1) of the FBTAA states:

This section applies to a living-away-from-home allowance fringe benefit covered by subsection 30(1) in relation to a year of tax to the extent that the employee satisfies all of the following for the fringe benefit and the period to which it relates:

(a) section 31C (about maintaining an Australian home);

(b) section 31D (about the first 12 months);

(c) section 31F (about declarations).

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

Alternatively, subsection 31A(1) of the FBTAA states:

This section applies to a living-away-from-home allowance fringe benefit covered by subsection 30(1) in relation to a year of tax to the extent that the employee satisfies all of the following for the fringe benefit and the period to which it relates:

(a) the requirement that the employee has residential accommodation at or near his or her usual place of employment;

(b) section 31E (about extra requirements for these employees);

(c) section 31F (about declarations).

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

If the requirements of neither subsection 31(1) or 31A(1) are met, the taxable value under section 31B of the FBTAA will be the amount of the allowance.

In considering whether either subsection 31(1) or 31A(1) applies, subsection 31A(1) will only apply if the employee is a fly-in fly-out nor drive-in drive-out employee, as defined in section 31E. Subparagraph 31E(1)(a)(i) provides that an employee will not be a fly-in fly-out nor drive-in drive-out employee if the employee works on the same days in consecutive weeks. As the employee works on the same days in consecutive weeks subsection 31A(1) will not apply.

As set out above, subsection 31(1) requires the conditions in sections 31C, 31D and 31F of the FBTAA to be met. However, sub item 27(1) of Tax Laws Amendment (2012 Measures No. 4) Act 2012 provides that it is not necessary to consider some of these conditions during the transitional period if the living-away-from-home allowance was provided under an eligible employment arrangement. Sub item 27(1) states:

27  Transitional - existing employment arrangements

(1) During the transitional period, disregard paragraph 31C(a) and section 31D

of the Fringe Benefits Tax Assessment Act 1986 if:

(a) the employee is neither a temporary resident nor a foreign resident;

and

(b) during the entire period:

(i) starting at the Budget time; and

(ii) ending on 30 September 2012;

that employment was covered by an eligible employment arrangement that

was neither varied in a material way nor renewed.

The term 'budget time' is defined in item 27 of the Tax Laws Amendment (2012 Measures No. 4) Act 2012, to mean 7:30 pm legal time in the Australian Capital Territory on 8 May 2012.

Therefore, as the employee is neither a temporary resident nor a foreign resident, it will not be necessary to consider the conditions contained in paragraph 31C(a) or section 31D of the FBTAA during the transitional period if the employment during the period 8 May 2012 to 30 September 2012 was covered by an 'eligible employment arrangement' that has not been varied in a material way nor renewed.

The meaning of the term 'eligible employment arrangement' is defined in item 27 of Tax Laws Amendment (2012 Measures No. 4) Act 2012 to mean:

… an arrangement under which:

(a) the employer; or

(b) an associate of the employer;

commits to provide the employee with an allowance or benefit for the employee's accommodation, food or drink while the duties of that employment require the employee to live away from his or her normal residence.

Although the employee's secondment commenced after budget time, the allowance is being paid under an agreement that was signed in February 2012. As the agreement was signed in February 2012 there was an eligible employment arrangement at the Budget time. Therefore, as this agreement was not varied in a material way, nor renewed during the period between the Budget time and 30 September 2012, paragraph 31C(a) and section 31D can be disregarded during the transitional period.

Transitional period is defined in item 27 of Tax Laws Amendment (2012 Measures No. 4) Act 2012 to mean:

… 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)(b) or (2)(b) ends; and

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

Therefore, provided the employment agreement under which the allowance is being paid is not varied in a material way, nor renewed before 30 June 2014, it will not be necessary to consider the application of paragraph 31C(a) and section 31D until that date.

On the basis that a variation does not occur, section 31 of the FBTAA will apply if the conditions in paragraph 31(b) and section 31F of the FBTAA are met.

Paragraph 31(b) of the FBTAA states:

The employee satisfies this section if:

(a) the place in Australia where the employee usually resides when in Australia:

…; and

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

The place at which the employee usually resides when in Australia is the property in the home city. As the employee will return to a position in the home city and recommence residing in the home city property the conditions in paragraph 31(b) of the FBTAA are met.

Therefore, provided the employee provides you with a declaration in the approved form, the taxable value of the living-away-from-home allowance fringe benefit under section 31 of the FBTAA will be the amount of the allowance less any exempt accommodation component and any exempt food component.

2. Will the allowance paid to your employee for dinner and incidental expenses in scenario B be a living-away-from-home allowance?

As discussed above, section 30 of the FBTAA provides that an allowance will be a living-away-from-home allowance if:

· the allowance is in the nature of compensation for additional expenses that are not deductible expenses, or additional expenses that are not deductible expenses and other disadvantages to which the employee is subject;

· as a result of the duties of employment requiring the employee to live away from his or her normal residence.

In considering these conditions, it is accepted that the allowance is paid for additional expenses incurred by the employee as a result of the employee being required to live in another branch for a period of 47 days to carry out higher duties. Therefore, the issue to be considered is whether the expenses are deductible expenses?

Deductible expenses are defined in subsection 136(1) of the FBTAA to mean:

expenses incurred by the employee in respect of which a deduction is allowable to the employee under section 8-1 of the Income Tax Assessment Act 1997 (ignoring Divisions 28, 32 and 900 of that Act).

Generally, a deduction is not allowed for food expenses. However, there are two circumstances in which the amount paid for food will be deductible. These two situations are summarised in paragraphs 3 and 4 of 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? (TD 96/7).

Paragraphs 3 and 4 of TD 96/7 state:

3. Where meals are provided, and it is concluded that the employee is travelling in the course of their employment, the taxable value of the benefit will be reduced to nil under the 'otherwise deductible' rule. The criteria for determining whether an employee is travelling in the course of performing their job are set out in paragraphs 35-43 of Taxation Ruling MT 2030. These criteria include:

· the nature of the duties performed;

· whether the employee is accompanied by dependants; and

· the length of time spent away from home.

As a practical general rule, where the question of whether or not the employee is travelling cannot easily be determined and the period away does not exceed 21 days, the employee may be accepted as travelling.

4. Guidance as to whether the 'otherwise deductible' rule will apply to reduce to nil the taxable value of meals provided to employees who are not travelling for work purposes is found in paragraph 5 of Taxation Ruling TD 93/230. Relevant factors to take into account include whether the employee:

· is required to live close by work;

· has a permanent residence away from the work site;

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

· has any choice as to the location of the accommodation provided.

Again, the 21 day period mentioned in paragraph 3 above will be accepted as a relatively short period of time for the purpose of these tests.

Guidelines for determining whether an allowance is a travelling allowance or a living-away-from-home allowance are provided in paragraphs 35 to 43 of Taxation Ruling MT 2030 Fringe Benefits Tax: Living-away-from-home allowance benefits (MT 2030), and part 11.12 of Fringe benefits tax: a guide for employers.

The following table sets out in summary, some of the indicators used to determine whether an allowance is a living-away-from-home allowance or a travelling allowance:

The indicators in the above table are guidelines only, and no single indicator determines the nature of the allowance received. For example, a travelling allowance might be paid to a commercial traveller almost continuously, whereas another employee may receive a living-away-from-home allowance for only a month or so.

There may be circumstances where an employee is away from their home base for a brief period in which it may be difficult to determine 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.

In the situation being considered:

· the employee has taken up a temporary residence away from their usual place of residence in order to carry out duties for a 47 day period;

· there is a change of job location in relation to the payment of the allowance;

· the employee will not be accompanied by their spouse or family; and

· the allowance is being paid for a 47 day period.

Although the employee is not accompanied by family members, the other factors indicate the employee is not travelling as there is a change in both the residence and job location. In addition, the 47 day period is more indicative of the allowance not being a travelling allowance.

The other situation in which the food expenses will be deductible is where the factors referred to in paragraph 4 of TD 96/7 are present. These factors were set out in the decision of the Federal Court in Roads and Traffic Authority of New South Wales v Federal Commissioner of Taxation (1993) 26 ATR 76; (1993) 116 ALR 482; (1993) 43 FCR 223; 93 ATC 4508 (RTA). In considering whether a camping allowance was a living-away-from-home allowance Hill J considered whether the expenditure for which the allowance was paid was deductible expenditure. In so doing, Hill J discussed the decisions in FC of T v Cooper 91 ATC 4396; (1991) 29 FCR 177 (Cooper) and FC of T v Toms 89 ATC 4373 (Toms).

In discussing the decision in Cooper, Hill J at ATC 4521 said:

Wilcox J, who dissented in Cooper, was of the view that there was a close connection between the outgoings of the taxpayer and his employment as a footballer. However, in referring to living-away-from-home expenses, his Honour said (at ATC pp 4404-4405; FCR 187-188):

``Take the instance of a taxpayer visiting another city for business purposes. The taxpayer incurs expenditure for meals at his or her hotel. On one view, the essential character of the expenditure is the sustenance of the taxpayer. Such a purpose has no connection with the derivation of assessable income; other than in the broad sense - irrelevant because it is applicable to everyone - that one must eat to live and, therefore, to work and to earn assessable income. However, the expenditure may also be characterised as being the cost of sustenance incurred by the taxpayer because of his or her absence from home on business. The difference between the two characterisations is that the latter takes account of the occasion of the expenditure. When this characterisation is adopted, a work-connection immediately appears and a deduction is granted.''

With respect, the same is true in the present case. 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.

In discussing the decision in Toms, Hill J at ATC 4522 said:

The case of FC of T v Toms, to which reference has been made, clearly depended upon its own particular facts. The taxpayer in that case was a self-employed forest worker. During his working week he lived in a caravan in a bush camp approximately 108 kilometres from his family home. The caravan was also used by him for storing logging equipment and as a temporary shelter when work was interrupted by bad weather. One of the questions before the Administrative Appeals Tribunal and, on appeal, this Court was whether the taxpayer was entitled to a deduction for the cost of maintaining the caravan and other living expenses, such as additional costs involved in providing food at the camp site. The principal issue, however, was the deductibility of expenditure of travel between the home and the caravan. In holding that the taxpayer was not entitled to the deduction, Burchett J (at 4376) placed emphasis upon the fact that the caravan was rendered necessary:

``... as much by the taxpayer's choice of the place of his residence in Grafton as by his choice of employment in the State forest, and its purpose was to enable him to retain his residence at Grafton although employed in the State forest. Had he lived at a town closer to the forest, there is no question the caravan would have been unnecessary.''

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.

It follows in my view that the amounts in question were deductible amounts and accordingly the benefits in question were excluded from the category of living-away- from-home allowance benefits under s. 30(1) of the Act.

The decisions in RTA, Cooper and Toms were considered by the Federal Court in Hancox v FC of T [2013] FCA 735; 2013 ATC 20-401 (Hancox).

In discussing the above passages from RTA, Besanko J at ATC 15109 said:

50. Those passages must be read in the context in which they were made. There are two factual matters which distinguish The Roads and Traffic Authority of New South Wales v Commissioner of Taxation from this case. First and importantly, in that case the employees were required to live in the camp. In this case, the applicant chose to live in South Australia and to travel (and stay) in Port Hedland for the purpose of his employment. Secondly, the additional expenses in that case were relatively modest additional costs of food "beyond the cost of living in [the employees'] own homes and perhaps other expenses caused to them by camping". In this case, the "additional expenses" are the cost of accommodation and food and sustenance.

51. I briefly restate the main facts. The applicant is an electrician by occupation. He was employed by Downer EDI as a leading hand maintenance electrician at or near Port Hedland. The applicant's usual place of residence was in South Australia. He paid his airfares from Adelaide to Perth and Downer EDI paid for his travel from Perth to Port Hedland. The applicant incurred losses and outgoings for accommodation and food and sustenance while staying in temporary accommodation in Port Hedland.

52. The cases to which I have referred strongly suggest that the losses or outgoings in relation to accommodation (i.e., in this case rent) and food and sustenance were not incurred in the course of gaining or producing assessable income. As far as accommodation is concerned,
Federal Commissioner of Taxation v Charlton [Charlton] is directly on point. Like the taxpayer in that case, the applicant chose to reside so far away from his place of employment that he incurred accommodation as well as travelling expenses. Like the travelling expenses, the accommodation expenses are not deductible. As far as food and sustenance is concerned, although the deductibility of expenditure on food can pose difficult questions, I do not think it does in this case. The income producing activities of the applicant were those associated with his work as an electrician. To adopt the approach of Lockhart J in Commissioner of Taxation v Cooper, the applicant was employed to perform the functions of a leading hand maintenance electrician at Downer EDI's Port Hedland site, not to consume food and drink. The decision in The Roads and Traffic Authority of New South Wales v Commissioner of Taxation is distinguishable. The food expenditure in that case was the additional cost of food by reason of living in the camp and the employees had no choice but to live away from home. In this case, the applicant could have had his usual place of residence in Port Hedland.

53. The application of the test of whether the occasion of the expenditure on accommodation and food and sustenance is to be found in the applicant's activities as a leading hand maintenance electrician leads to the same result. The occasion of the expenditure is the applicant's choice to live in South Australia rather than in Port Hedland.

In applying these decisions, you require the employee to work in another branch for a period of 47 days. At the conclusion of this period the employee will return to his ongoing position. Although you do not specify that the employee must reside in the other city, the situation is comparable to that in RTA as:

· the employee is required to live away from his usual place or residence to perform the duties of employment;

· the ongoing place of employment does not change;

· the employee has retained a permanent residence to which he will return at the end of the assignment; and

· although the period of time is longer than 21 days, it can still be considered to be a relatively short period of time.

In the circumstances, the situation can be distinguished from the situation in Toms and Charlton as the decision to change the work location and therefore the residence for the 47 day period was the choice of the employer, rather than the employee. As with RTA, no question arises of the employee choosing to reside in the other city for the 47 day period and the period is not long enough for the other city residence to be considered to be the employee's usual residence.

Therefore, in accordance with the decision in RTA, the allowance will not be a living-away-from-home allowance as it is paid for deductible expenses.

3. Will a fringe benefits tax liability arise from the reimbursement of the accommodation expenses in scenario B?

In addition to the allowance discussed above in relation to question 2, you will reimburse the accommodation expenses incurred by the employee during the 47 day period he is located in the other city.

The reimbursement of expenses will be an expense payment benefit under paragraph 20(b) of the FBTAA.

Section 21 of the FBTAA provides that an expense payment benefit may be an exempt benefit where the expenditure is in respect of accommodation that is required solely because the duties of employment require the employee to live away from his or her normal residence. Section 21 states:

Where:

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

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


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

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

(d) the employee satisfies:

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

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

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

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

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

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

In considering these paragraphs:

· the requirement in paragraph (a) is met as the benefit is an expense payment benefit;

· the requirement in paragraph (b) is met as the employee's expenditure was for accommodation of family members;

· the requirement in paragraph (ba) is met as the employee is not undertaking travel in the course of performing duties of employment;

· the requirement in paragraph (c) is met as the accommodation is required solely because the duties of employment require the employee to live away from the normal residence;

· the requirements in paragraph (d) will be met if the employee maintains the residence in the home city as the 47 day period is less than 12 months; and

· the requirement in paragraph (e) will be met if the employee provides the relevant declaration.

Conclusion

Therefore, in scenario B;

· the allowance paid for food and incidental expenses will not be a living-away-from-home allowance as these expenses are deductible expenses; and

· the reimbursement of the accommodation expenses will be an exempt benefit under section 21 of the FBTAA if the employee maintains the residence in the home city during the 47 day period and provides the relevant declaration.

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