Edited version of your private ruling

Authorisation Number: 1012557066901

Ruling

Subject: Allowance

Question 1

Is the allowance you received included in your assessable income?

Answer

Yes.

Question 2

Are you entitled to a deduction for accommodation or meals?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts and circumstances

You are an Australian resident with a house in Australia.

You obtained work overseas from October 2012 to October 2013.

You were paid by an overseas company.

As you were required to live overseas, away from your spouse and child who remain in Australia, you were paid a monthly allowance to compensate for living away from home.

You received a monthly allowance. You actually spent more than the allowance which can be substantiated.

The allowance is only available from the 2nd month of employment for a maximum period of 2 years. You ended your employment after one year and returned home to Australia.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 15-2

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1936 section 23L

Income Tax Assessment Act 1936 section 31F(1)

Reasons for decision

Allowance

Section 15-2 of the Income Tax Assessment Act 1997 (ITAA 1997) states that  your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you.

Section 23L of the Income Tax Assessment Act 1936 states that income derived by a taxpayer by way of provision of a fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) is not assessable income and is not exempt income of the taxpayer.

For an allowance to be considered a living away from home allowance (LAFHA) the employee is required under section 31F(1) of the ITAA 1937 to provide the employer with a declaration in a form approved by the Commissioner, purporting to set out:

· The address of the place in Australia where the employee usually resided when in Australia and

· The residence in Australia satisfies section 31C; and

· The address of each place where the employee actually resided during the period to which the benefit relates

Miscellaneous Taxation Ruling MT 2030 provides guidance in relation to the distinction between a living away from home allowance and a travel allowance. While the expenses that they are intended to compensate for may be similar - meals and accommodation - the circumstances in which the allowances are paid are essentially different.

A living away from home allowance is paid where an 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. There is a change of job location and an actual change of residence to a place at or near that location.

Therefore, for an allowance to be considered and accepted as a living away from home allowance, the employer must determine whether the employee is bona fide living away from home during the period of his employment because of the nature of their duties.

If an employer determines that an employee is required to live away from home to carry out his/her employment duties and the employee does not have a transitory lifestyle referred to in MT 2030, then any payments or reimbursements by way of a living away from home allowance will be subject to taxation obligations under the FBT legislation. Such FBT obligations remain the responsibility of the employer and all necessary records must be kept.

A travel allowance, on the other hand, is paid because the employee is travelling in the course of performing his or her job. Travel allowances are often paid for comparatively short periods. Where the period away does not exceed 21 days the allowance will generally be treated as a travel allowance.

In your case, the allowance is not subject to fringe benefits tax and you have not provided your employer with a declaration under section 31F(1) of the ITAA 1937.

Therefore, as the allowance is not a fringe benefit, it is assessable under section 15-2 of the ITAA 1997.

Deductibility

Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

An employee is not automatically entitled to a deduction for expenses incurred in relation to an allowance. The expenses must meet the criteria for deductibility under section 8-1 of the ITAA 1997 and the substantiation requirements.

As a general rule, expenditure on accommodation (which includes electricity, phone and water) while working away from home is not allowed as a deduction. These costs are essentially 'living expenses' of a private or domestic nature. The fact that income cannot be earned unless certain expenses are necessarily incurred is not determinative of deductibility.

Where it has been established that a property used to accommodate a taxpayer amounts to a second residence, the Courts and the Administrative Appeals Tribunal have consistently held that the essential character of the expenses incurred is of a private or domestic nature unconnected with income-producing activities and, therefore, the expenses are not deductible. The reasoning in these cases is that a taxpayer's choice to establish a residence is not dictated by travel needs, but by considerations of a private or domestic nature. It follows that the required connection between second residence expenses and a taxpayer's income-producing activities is absent.

In FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466 the Federal Court disallowed a forest worker's deduction for the cost of maintaining a caravan and other living expenses. The taxpayer incurred the expenses in providing temporary accommodation at the base camp because the taxpayer had chosen to reside at a place far from the worksite. These expenses were dictated not by work but by private considerations.

In your case, you have established a second residence overseas. Expenses relating to this accommodation are considered to be private in nature. Accordingly, a deduction for these expenses is not allowable.

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