Edited version of your private ruling

Authorisation Number: 1012563149159

Ruling

Subject: Fringe benefits tax: Residual benefits and living-away-from-home allowance

Question 1

Will you incur a fringe benefits tax liability for the rotational flights provided to your employees?

Answer

Yes

Question 2

Will a fringe benefit arise in relation to the food allowance paid to your employees?

Answer

Yes

This ruling applies for the following periods:

A number of fringe benefits tax years commencing in the 2013 fringe benefits year.

The scheme commences on:

In the FBT year commencing 01/04/2013

Relevant facts and circumstances

You are undertaking a project in a location that is not a remote location.

The project duration is of a fixed term.

You were unable to recruit all the required employees locally and you hired employees from various locations around Australia to work on the project.

The employees whose normal residence is not in the same location as the project site (the relevant employees) work on a fly-in fly-out rotating roster.

You fly the relevant employees to and from the project site for each rotation. You arrange, book and pay for these flights.

The relevant employees all have a normal residence away from project location, which they live in when they are not working at the project.

When travelling between their homes and the work site, you consider the relevant employees to be on duty; the employees must comply with the conditions of employment applicable to employees on duty and your insurance coverage commences from the point of the flight.

When the employees are working at the project they work long rostered hours including some weekends. Due to this working arrangement the relevant employees do not return to their homes on the weekends.

The relevant employees' families do not accompany them to the project site.

Accommodation

You provide some employees with accommodation in houses.

The employees:

· do not have a choice of house

· stay in the same house each rotation

· sometimes share a house with other employees, keeping their same room each rotation

Food

The employees who reside in the houses are provided with a food allowance to meet the additional cost of food while they are residing and working at the project site.

You provided documents that show your employees duties, pay and conditions.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 30(1)

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 subsection 47(7)

Fringe Benefits Tax Assessment Act 1986 section 52

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1936 (ITAA 1936) section 51A

Reasons for decision

Question 1

Detailed reasoning

Will you incur a fringe benefits tax liability for the rotational flights provided to your employees?

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides the following definition of a 'fringe benefit':

fringe benefit, in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:

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

(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) …

in respect of the employment of the employee, but does not include:

…

(g) a benefit that is an exempt benefit in relation to the year of tax; or

…

'Benefit' in this context is also defined in subsection 136(1) of the FBTAA as follows:

Benefit includes any right (including a right in relation to, and 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:

(a) an arrangement for or in relation to:

(i) the performance of work (including work of a professional nature), whether with or without the provision of property;

(ii) the provision of, or the use of facilities for, entertainment, recreation or instruction; or

(iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;

(a) a contract of insurance; or

(b) an arrangement for or in relation to the lending of money.

When you provide the rotational flights to your employees you provide them with a benefit. The benefits will be fringe benefits if they are not exempt benefits.

In order to determine whether you will have a fringe benefits tax liability arising from the provision of the rotational flights it is necessary to initially consider the type of benefit that is provided. The FBTAA is divided into 13 types of benefits and each type has its own valuation rules.

Section 45 of the FBTAA defines residual benefits as:

45 Residual benefits

A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive).

The provision of the rotational flights are a benefit that does not fall within one of the specific categories of benefits in Subdivision A of Divisions 2 to 11 of the FBTAA and therefore, according to section 45 of the FBTAA, the provision of the rotational flights constitutes a residual benefit.

Residual benefits can be exempt in certain scenarios and therefore not considered to be fringe benefits. Fly-in fly-out transport provided as a residual fringe benefit to employees who work in remote areas in Australia, overseas, on oil rigs or other installations at sea can be exempt where the conditions of subsection 47(7) of the FBTAA are satisfied. Paragraph 47(7)(a) of the FBTAA lists the first condition that must be satisfied:

47(7)

Where, during a period of employment with an employer:

(a) an employee's usual place of employment is:

(i) on an oil rig, or other installation, at sea; or

(ii) at a location in a State or internal Territory but not in, or adjacent to, an eligible urban area; or

(iii) at a remote location that is not in a State or internal Territory; and …

Therefore, in order for the subsection 47(7) exemption to apply, the employees' usual place of employment cannot be in or adjacent to an eligible urban area. The ATO's website, www.ato.gov.au, provides lists of eligible urban, remote and non-remote areas for the purpose of this exemption. Your employees' usual place of employment under this arrangement is in an eligible urban area for the purposes of subsection 47(7) of the FBTAA. The exemption contained in subsection 47(7) of the FBTAA therefore does not apply to exempt the flights provided to your employees from being fringe benefits.

No other exemptions apply to exempt the provision of the flights from being a fringe benefit. Therefore, the provision of the flights is a residual fringe benefit.

The taxable value of a residual fringe benefit can be reduced in certain circumstances by the use of the otherwise deductible rule contained in section 52 of the FBTAA.

Section 52 of the FBTAA states:

52 Reduction of taxable value - otherwise deductible rule

(1) Where:

(a) the recipient of a residual fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer; and

(b) if the recipient had, at the comparison time, incurred and paid unreimbursed expenditure (in this subsection called the gross expenditure), in respect of the provision of the recipients benefit, equal to the amount that, but for this subsection and Division 14 and the recipients contribution, would be the taxable value of the residual fringe benefit in relation to the year of tax - a once-only deduction (in this subsection called the gross deduction) would, or would if not for section 82A of the Income Tax Assessment Act 1936, and Divisions 28 and 900 of the Income Tax Assessment Act 1997, have been allowable to the recipient under either of those Acts in respect of the gross expenditure; and

(ba) the amount (in this subsection called the notional deduction calculated in accordance with the formula

GD - RD

…

exceeds nil; and

…

The recipient gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, in respect of the recipients benefit; and

…

the taxable value, but for Division 14, of the residual fringe benefit in relation to the year of tax is the amount calculated in accordance with the formula:

TV - ND

Taxation Ruling TR 2001/2 Fringe benefits tax: the operation of the new fringe benefits tax gross-up formula to apply from 1 April 2000 (TR 2001/2) summaries the operation of the otherwise deductible rule. TR 2001/2 states:

The taxable value of certain fringe benefits may be reduced to the extent that the employee would have been able to claim an income tax deduction had the employee themselves incurred the expense. The otherwise deductible rule applies to reduce the taxable value of either an airline transport fringe benefit, a board fringe benefit, an expense payment fringe benefit, a loan fringe benefit, a property fringe benefit or a residual fringe benefit. The taxable value is reduced by the hypothetical income tax deduction to which the employee would have been entitled had the employee incurred the expense…

Therefore, in order to determine whether you will have a fringe benefits tax liability in relation to the rotational flights, it must be determined whether your employees would have been entitled to claim a once only income tax deduction for the costs of the flights had they incurred the expenses themselves.

Would your employees have been entitled to claim a once only deduction for the costs of the rotational flights had they incurred the expense themselves?

The Income Tax Assessment Act 1997 ( ITAA 1997) stipulates in what circumstances an individual can claim an income tax deduction in their individual tax return for a relevant work related expense. The general rules about deductions are found in section 8-1 of the ITAA 1997 as follows:

8-1 General deductions

(1) You can deduct from your assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income; or

(b) it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income.

(1) However, you cannot deduct a loss or outgoing under this section to the extent that:

(a) it is a loss or outgoing of capital, or of a capital nature; or

(b) it is a loss or outgoing of a private or domestic nature; or

(c) it is incurred in relation to gaining or producing your *exempt income or your *non-assessable non-exempt income; or

(d) a provision of this Act prevent you from deducting it.

In summarising, to deduct an amount for a loss or outgoing under section 8-1 of the ITAA 1997 one of the following requirements must be met:

· the loss or outgoing must be incurred in gaining or producing assessable income, or

· the loss or outgoing must be necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income

In addition, subsection 8-1(2) prescribes that a deduction will not be allowed as a general deduction if any of the following exists:

· the expense is capital or capital in nature

· the expense is private or domestic in nature

· the expense is used to produce exempt income or non assessable non-exempt income

· the expense is prevented from being deducted by a provision of the ITAA 1997 or the Income Tax Assessment Act 1936

Courts have typically held that the costs incurred in travelling to and from work are generally not deductible. The established case law authority on the deductibility of travel expenses was affirmed in the cases of Lunney and Hayley v FC of T (1958) 100 CLR 47 (Lunney) and is explained in Taxation Ruling IT 112 Deductibility of travelling expenses between residence and place of employment (IT 112). Paragraphs 2 to 5 of IT 112 state:

2. 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.

3. 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.

4. 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."

5. 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."'

IT 112 also discusses the application of Lunney to other cases:

21. From this review of authorities, the following guidelines are considered to have emerged:-

(a) cases comparable with Lunney and Hayley;

(i) In the case of the great majority of employees and of people pursuing a profession or other ordinary vocation, expenses of travelling - whether by public transport or by use of their own motor vehicles - in habitually going from home to a regular place of employment or business are not deductible. No general change in the settled approach is warranted to the longstanding line of decisions that the essential character of the expenditure in such cases is a personal or living expense rather than an expense incurred in, or in the course of, gaining assessable income. These journeys are made by such a taxpayer on the way to his employment and in returning from it. They are not made in the course of his employment or in the performance of his duties.

Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits (MT 2030) confirms that when an employee is travelling in the course of their employment as opposed to travelling to and from work, the costs of the travel can be deductible to the employee:

36. When an employee is travelling on business on behalf of an employer, expenses of travel are incidental to the proper carrying out of the employment function and do not have the character of being private or domestic expenses. As it was stated in Case No. B 84, 2 TBRD 390, "…where the employment actually involves the duty of travelling and therefore staying away from home, the extra expenses of living at hotels, etc., together with costs of conveyance, etc., are deductible as, to that extent, they cease to be of a private or domestic nature."

It is clear that there is a distinction between the costs incurred in travelling to work which are generally not deductible, and the costs incurred in travelling on work (that is, in the course of the employee's employment), which can be deductible.

The distinction between travel to work and travel 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 the 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.

Are your employees travelling in the course of their employment?

MT 2030 provides guidelines to assist in determining whether an employee is travelling in the course of performing the duties of their employment. The criteria are set out in paragraphs 37- 43 and include:

o the nature of the job;

o the length of time the allowance is paid for, and

o whether the employee is accompanied by their spouse or family.

The first criterion is discussed in paragraphs 37 and 38 of MT 2030 which state:

37. Unlike living-away-from-home allowances, there is generally no change of employment location in relation to the payment of travelling allowances…

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.

The relevant employees have normal residences outside of the project location. You consider that the employees are on duty while they are on the flight. The employees are required to comply with conditions of their employment applicable to employees on duty while they are on the flights. Your insurance coverage commences from the point of the flight.

Nevertheless, the employees' duties of employment actually start after their arrival at the project site. Your employees travel to the project site to begin their work and in doing so change their residence to be at that job location. This is compared with beginning their employment duties at a usual place of employment in their home state and travelling on work to the project location to continue carrying out the requirements of their jobs.

Evidence that the employees' duties of employment commence after their arrival at the project site and cease at their departure, is contained in the documents you provided showing your employees duties, pay and conditions. The documents effectively show the travel time as leave time with employment duties commencing the day after arrival at the project location.

Consideration of these facts in the context of the first criterion of MT 2030 indicates that the employees are not travelling in the course of performing their jobs.

The second criterion is the length of time the allowance is paid for. This criterion is discussed in paragraphs 39 to 41 of MT 2030 which state:

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.

Your employees work away for on a fly-in fly-out rotating roster. The period of time that they work away for is greater than the 21 day guideline provided in paragraph 41 of MT 2030 which usually indicates that the employee is not travelling in the course of their employment. However, as stated by paragraph 41 it is necessary to consider all of the guidance provided by MT 2030 in determining this.

Paragraph 39 of MT 2030 also states that employees may be considered to be travelling in the course of their employment for longer periods of time where travelling is a regular incident of the occupation or where the employment is inherently itinerant in nature.

You have submitted that in the industry in which your employees work there is an inherent need to move around. The type of work pattern you have described is not analogous to a commercial traveller or a travelling entertainer - the occupations provided by MT 2030 as examples of occupations where travelling is a regular incident of the occupation. Further, your employees are employed to work on a particular project at a particular location and it is because their normal residences are not in the location that they have been employed to work, that they are required to travel interstate to work. The requirement to travel is caused by the location of their employment and normal residences, not as an incident of their occupation. If the employees had their normal residences at the project location they would not be required to travel in order to work.

Whether an employee's employment is inherently itinerant in nature has been considered by numerous cases. IT 112 discusses the case of FC of T v. Weiner 78 ATC 4006; 8 ATR 335 (Weiner), where a school teacher who was required to work at multiple schools during one day was considered to be in itinerant employment. A deduction was subsequently allowed for motor vehicle expenses in travelling for her employment. Discussing the principles of the Weiner case IT 112 states:

18. … It was not disputed that expenses incurred in travelling between schools were deductible and the issue in the appeal was the deductibility of the cost of travelling between her home to the first school of each day and between the last school on each day and her home.

19. Smith J. in the Supreme Court of Western Australia held that it was not open to challenge that travel was a fundamental part of the taxpayer's work; the taxpayer would not have been able to perform her duties without the use of her motor vehicle. On four of the five working days the taxpayer's contract of employment required her to teach at not less than four different schools and to comply with an exacting timetable which kept her on the move throughout each of those days. The nature of the job itself made travel in the performance of its duties essential and it was a necessary element of the employment that on those working days transport be available at whichever school the taxpayer commenced her teaching duties and that transport remained at her disposal throughout each of those days. It appeared to have been tacitly understood that she would provide her own means of transport as she was paid an allowance by her employer for the use of her motor vehicle in travelling between schools. Smith J. took the view that the travelling expenses claimed by the taxpayer fell within the category of travelling expenses referred to in Taylor v. Provan (1975) AC 194 (per Lord Simon of Glaisdale at p. 221) where the office or employment is of itself inherently an itinerant one, and that the taxpayer may be said to be travelling in the performance of her duties from the moment of leaving home to the moment of return there.

21.

..

(e) cases comparable with Wiener: Expenditure on travelling may be accepted as having the essential character of expenditure incurred in gaining or producing the assessable income of a taxpayer in the relevant sense where the office or employment of the taxpayer is precisely the same as that in Wiener, namely, it is inherently of an itinerant nature; travel must be a fundamental part of the taxpayer's work; the taxpayer must not be able to perform his duties without the use of a motor vehicle; the taxpayer's contract of employment must require him to perform his duties at more than one place of employment; the nature of the job itself must make travel in the performance of its duties essential; and, it must be able to be said of the taxpayer that he is travelling in the performance of his duties from the time of leaving home.

In comparison to Wiener, in FC of T v. Genys (1987) 17 FCR 495; 87 ATC 4875; (1987) 19 ATR 356 (Genys), it was held that the taxpayers work was not itinerant. The taxpayer in Genys was a registered nurse who worked relief shifts for various hospitals. The taxpayer was not employed by any hospital but was registered with an employment agency who would contact the taxpayer to undertake shifts requested by a hospital. The work was arranged by telephone and often at very short notice. The taxpayer used her car to travel to the hospital. It was not considered relevant that the taxpayer travelled by car in order to keep her travel time to a minimum. At 4882 - 4483 Northrop J held:

After anxious consideration, I have come to the conclusion that the taxpayer's employment cannot be regarded as "itinerant". The main distinction, which I draw, between this case and the factual situations referred to in Horton v. Young and Wiener is that here, the taxpayer does not travel between two places of work after the commencement of her duties; she simply drives from home to work and back again.

By contrast, in the situations referred to in Horton v. Young, the taxpayer (whether a salesman, plumber, chimney sweep, etc.) travels from home to work, but also travels from that first place of work to other places of employment throughout the course of the day before his return home. this was also the case with the school teacher in Wiener, where the taxpayer travelled to five different schools per day, not one school per day for five days (which would make it comparable to the present case).

Taxation Ruling TR 95/34 Income tax: employees carrying out itinerant work - deductions, allowances and reimbursements for transport expenses (TR 95/34) provides further guidance as to whether an employee's work is itinerant:

When is an employee's work itinerant?

7. There have been a number of cases considered by the Courts, Boards of Review and Administrative Appeals Tribunal where deductions for transport expenses were allowed on the basis of the taxpayers' 'shifting places of work'. 'Shifting places of work' is another term for itinerancy. In these cases the obligation to incur the transport expenses arose from the nature of the taxpayers' work, such that they were considered to be travelling in the performance of their duties from the moment of leaving home. The following characteristics have emerged from these cases as being indicators of itinerancy:

a) travel is a fundamental part of the employee's work …

b) the existence of a 'web' of work places in the employee's regular employment, that is, the employee has no fixed place of work…

c) the employee continually travels from one work site to another. An employee must regularly work at more than one work site before returning to his or her usual place of residence…

d) other factors that may indicate itinerancy (to a lesser degree) include:

(i) the employee has a degree of uncertainty of location in his or her employment (that is, no long term plan and no regular pattern exists)

(ii) the employee's home constitutes a base of operations

(iii) the employee has to carry bulky equipment from home to different work sites

(iv) the employer provides an allowance in recognition of the employee's need to travel continually between different work sites

7. Whilst the above characteristics are not exhaustive, they provide guidelines for determining whether an employee's work is itinerant. It is considered that no single factor on its own is necessarily decisive.

TR 95/34 continues:

8. The question of whether an employee's work is itinerant is one of fact, to be determined according to individual circumstances. It is the nature of each individual's duties and not their occupation or industry that determines if they are engaged in itinerant work. Further, itinerant work may be a permanent of temporary feature of an employee's duties.

Considering the guidelines provided by IT 112 and TR 95/34 it is considered that your employees' work is not itinerant. As discussed above, paragraph 9 of TR 95/34 states that it is the nature of each individual's duties and not their occupation or industry that determines if they are engaged in itinerant work. In accordance with the characteristics listed at paragraph 7 of TR 95/34, the work that your employees are engaged in is not itinerant in nature.

The third criterion listed in MT 2030 is whether the employee is accompanied by their spouse or family and is discussed in paragraphs 42 and 43 of MT 2030, which state:

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.

Your employees attended work at the project site unaccompanied. However, as confirmed by paragraph 43 of MT 2030 an unaccompanied employee is not always to be considered to be travelling and an accompanied one living-away-from home. Given the circumstances of your employees' employment; where they remain at the project site for a pre-determined length of time during which they long rostered hours including some weekends, it is less relevant whether they are accompanied. Your employees' circumstances align with the examples provided in paragraph 43 of MT 2030 - unaccompanied employees who are considered to be living-away-from-home.

The recent case of Fox v Federal Commissioner of Taxation [2013] AATA 471 (Fox) also considered the difference between travelling to work and travelling on work. Fox concerned a taxpayer who worked as a truck driver on a drive in, drive out roster. He drove from Adelaide to Port Augusta before his first shift and returned to Adelaide after his last shift. In travelling to Port Augusta, the taxpayer travelled in his own vehicle and was not reimbursed for the fuel. The taxpayer's usual place of residence remained in Adelaide. The Court held in this case that the taxpayer was travelling to work in Port Augusta as opposed to travelling on work:

19. In addition to the deductibility of the cost of meals when considered normally, a similar consideration can arise in the case of the cost of travel to and from work. In Lunney v The Commissioner of Taxation, the High Court held that expenses incurred by taxpayers in travelling day by day from their homes to their places of employment and back again are generally not deductible. The question then arises, in the case of an employee, whether the expenses are incurred in travelling to work or in travelling on work. Mr Cole submitted that Mr Fox's case was an example of someone travelling to work at a considerable distance away from his home. Mr Fox chose to work in Port Augusta and to take motel accommodation for the times he worked there. It was a choice that he made, but he is not entitled to a deduction for the expenses involved. The expenses are incurred in the same way as the costs in travelling to and from work.

Fox also considered and applied the cases of Federal Commissioner of Taxation v Charlton (1984) 15 ATR 711; 84 ATC 4415 (Charlton) and Federal Commissioner of Taxation v Toms (1989) 20 ATR 466 (Toms) to conclude that work related travel costs mainly in relation to the cost of accommodation were not deductible expenses. The principles identified in these cases can be applied to assist in determining whether a taxpayer is travelling to work or on work.

Charlton concerned a doctor whose usual place of residence was in Melbourne but who, during the relevant period, worked in Bendigo approximately 150 kilometres away from his home. In order to avoid making many trips late at night or in the early hours of the morning the doctor rented a flat in Bendigo. Crockett J at 4419 - 4420 stated:

The Commissioner contends (correctly in my view) that, if the taxpayer should choose to reside so far from the place where it is necessary for him to be in order to gain his income that he not only needs to incur expense in travelling to that place but also to incur expense in the provision to him of some accommodation transitory or discontinuous in its use and secondary to or temporarily supplemental of his actual home, then that expense, too, is for the same reason non-deductible.

Toms' case involved a similar issue to Charlton, where a logging contractor lived during the working week, in a caravan in a bush camp which was approximately 108km from his family home. The contractor claimed that it was too far to travel each day to his work in the forest and as such it was necessary to establish the caravan at the base. He claimed that therefore he was entitled to income tax deductions for maintaining the caravan and for the additional costs of food at the campsite.

Burchett J applied the principles established in Charlton and similarly held that the costs in question were incurred due to the fact that the contractor had chosen to live away from his usual place of residence in the caravan in the forest as opposed to being required to. Burchett J at 4375 to 4377 stated:

… 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.

…

I am unable to distinguish the situation of Mr Toms from Charlton's case. The principles there applied are supported by the authorities to which I have adverted. Those principles require that the exception perceived by the Tribunal in cases of the present kind should be rejected. It follows that it was not open to the Tribunal to find the expenditure proved in this instance deductible under sec. 51(1).

Considering the criteria outlined in MT 2030 and the relevant case law it is considered that your employees are not travelling in the course of their employment but travelling to work, and that, as identified in Lunney and confirmed in IT 112 the costs of such travel are not considered to be deductible to the employee.

While the proposition in Lunney has remained the general authority regarding the deductibility of travel expenses, other cases have extended its application in certain circumstances. In Genys, Northrop J stated at 4878:

However, the general proposition laid down in Lunney, notwithstanding that it remains good law, is not exhaustive. In Garrett v. F.C. of T. 82 ATC 4060, the Supreme Court of New South Wales constituted by Lusher J. held that it had no application to the following situations:

(a) where the taxpayer keeps necessary equipment or instruments at his home which he needs for the purpose of performing his work, and by reason of its bulk, such equipment needs to be transported by vehicle from the home to his place or places of work and where the equipment is used at home;

(b) where the taxpayer incurs expenses for travel between two places of business or work; and

(c) where the employment can be construed as having commenced at the time of leaving home.

A fourth situation, not enunciated in Garrett, is where the taxpayer travels between home and shifting places of work , i.e. an itinerant occupation.

Each of these four exceptions will be considered separately in relation to your circumstances. It is important to note in regards to these case law exceptions that the decisions are not intended to extend the general principles of the law. As identified by IT 112:

22. The guidelines outlined in paragraph 21 above are not intended to be an exhaustive statement of the principles to be applied to all cases likely to arise in relation to travelling expenses between a taxpayer's residence and his place of employment or business but merely a statement of the principles which are considered to have emerged from the decided cases in relation to this matter. Essentially, as recognised by Dr Gerber in 79 ATC Case L49, 23 CTBR(NS) Case 56 (one of the "air pilot" cases), the Supreme Court decisions have been decided on their own peculiar facts and they should be followed in other cases only where similar circumstances obtain. They should not be regarded as altering existing policy in the normal case of travel between home and employment.

(a) Bulky equipment used at home required to be transported by vehicle from home to place or places of work

In relation to the first exception identified in Garrett and discussed in Genys, IT 112 summarises:

7. In Vogt a professional musician was allowed deductions for motor vehicle expenses incurred by him in travelling between his place of residence and the various places at which he performed. Waddell J. in the Supreme Court of New South Wales held that the essential character of the expenditure was such that it should be regarded as having been "incurred in gaining or producing the assessable income".

8. Waddell J. considered that the first step in determining whether the expenditure was deductible under section 51 was to state the relevant aspects of the operations carried on by the taxpayer for the production of his income. These were that he earned his income by performing at several places, on musical instruments and associated equipment on terms that he brought the instruments and equipment to the place of performance; the instruments and equipment were of substantial value; they were of a bulk which meant they could be transported conveniently only by the use of a motor vehicle; the taxpayer kept the instruments and equipment at his residence for justifiable reasons of convenience and for the purposes of practicing on them.

…

10. A matter which apparently weighed heavily in his Honour's mind was that the expenditure arose from, or could be attributed to, the necessity of getting the instruments and associated equipment to the place of performance. This clearly emerges from certain dicta by Waddell J. in relation to the expense of a violinist travelling from his residence to the place of performance where he takes with him his violin which he keeps at home for safe keeping and for the purpose of practising (75 ATC at page 4078; 5 ATR at page 279. His Honour thought that such an expense was clearly not deductible. He recognised, however, that cases may well arise where, as a matter of fact, the size and bulk of an instrument or the reasons for keeping it at home may make it difficult to determine whether expenditure incurred in circumstances similar to that case is deductible.

IT 112 summarised the application of this exception:

21.

…

(b) Cases comparable with Vogt: Expenditure on travelling may be accepted as having the essential character of expenditure incurred in gaining or producing the assessable income of a taxpayer in the relevant sense where:-

(i) the relevant aspects of the operations carried on by the taxpayer for the production of his income are closely comparable with those in Vogt, namely, income is earned by performing his duties at several places by using his own equipment with he brings to the place of performance; the equipment is of substantial value and of such bulk that it can only be conveniently transported by the use of a motor vehicle; and, there are justifiable reasons for the taxpayer to keep the equipment at home; and

(ii) the essential character of the expenditure itself is such that the expenditure is incurred as part of the operations by which the taxpayer earns his income; there is no other practicable way of getting his equipment to the places where he is to perform; and the expenditure may be attributed to the carriage of the equipment rather than to his travel to the place of performance.

Your employees' circumstances do not align with the requirements listed in paragraph 21(b) for the exception in Vogt to be applied.

(b) Travel between two places of business or work

In Federal Commissioner of Taxation v. Ballesty 77 ATC 4181; (1977) 15 ALR 522; (1977) 7 ATR 411 (Ballesty) the taxpayer was employed full-time as a purchasing officer by a social club and was also a part-time professional footballer. The taxpayer had an agreement with the football club under which he was bound "to the best of his ability and skill to play the game of Rugby League football for the club in any team and in any grade as to when and where he may be from time to time called on by the said club so to do' and, to keep himself in the best possible condition and to carry out the training and other instructions of the club through its responsible officials. The question in this case was whether the taxpayer was entitled to a deduction for car expenses in travelling from training sessions at the club's home ground to his home and, from his home to matches played on the club's home ground and return travel to his home after the game.

It was held in this case that the travel expenses were deductible. The reasons provided were very specific to the facts of the case. IT 112 summarises:

15. It was argued for the taxpayer that there are two ways in which it could be said that the occasion of the expenditure may be found in his income-producing activities. Waddell J. accepted both submissions. First the practical necessity of travelling by motor vehicle to and from matches and training in order for the taxpayer to produce his best form. The occasion of the expenditure was the necessity to comply with the terms of his contract and to fit himself to make the best contribution he could to the winning of the match or to the success of the training sessions to or from which he was travelling. In considering the practical necessity of travelling by motor vehicle, Waddell J. took into account the practical reasons advanced by the taxpayer in evidence, namely, the carriage of football gear, its weight, certain temperamental factors, length of time required to travel and avoiding contact with other people.

16. Secondly, Waddell J. took the view that the taxpayer travelled from his home as a base of operations to the various places he was required to go pursuant to his contract. His Honour said (77 ATC at page 4185; 7 ATR at page 415).

"Here the occasion of the expenditure is in travelling to a variety of places as required from time to time under the contract by the performance of which the taxpayer earned the assessable income…. Although I do not find it an easy question to resolve, I think that on the whole the taxpayer should be regarded as having embarked upon the activities by which he earned the assessable income when he left his home to travel either to a match or to training and as continuing in those activities on his journey home. In this sense his place of residence should be regarded as his base of operations. If this view is correct, as I think it is, the occasion of the expenditures in question are to be found in an activity which is productive of the assessable income."

17. In addition, the Commissioner regarded expenditure on travel between Ballesty's regular place of work and training sessions and to and from "away" matches as deductible and Waddell J. took the view that no distinction should be drawn between these allowable expenditures and those disallowed by the Commissioner.

At paragraph 21, IT 112 discusses the applicability of the Ballesty decision to other cases:

(d) cases comparable with Ballesty: Expenditure on travelling by motor vehicle may be accepted as having the essential character of expenditure incurred in gaining or producing the assessable income of a taxpayer engaging in high level sporting activity in the relevant sense where:-

(i) the relevant aspects of the operations carried on by the taxpayer for the production of his income and the essential character of the expenditure itself are very comparable with those in Ballesty, namely, income is earned by performing his duties at more than one place in suitable sporting gear; there is a practical necessity of travelling by motor vehicle to and from sporting events and training in order for the taxpayer for produce his best form; and, the occasion of the expenditure is the necessity to comply with the terms of a contract entered into by the taxpayer with his employer providing a continuing obligation to do everything necessary to get and keep himself in the best possible condition so as to render the most efficient service to his employer. The taxpayer must be under a contractual obligation to travel to and from sporting events and training in a way which would enable him to perform at his best. In considering the practical necessity of travelling by motor vehicle, consideration should be given to the carriage of sporting gear, its weight, any temperamental factors comparable with those in Ballesty, the length of time required to travel and any necessity to avoid contact with the general public; and

(ii) the taxpayer must travel from his home as a base of operations to the various places he was required to go in accordance with a contract of employment with his employer so that the taxpayer may properly be regarded as having embarked on the activities by which he earned his assessable income when he leaves his home to travel either to a sporting event or to training and as continuing in those activities on his journey home.

(iii) Whether expenditure on travel between the taxpayer's regular place of employment or business and training sessions and to and from "away" sporting events are properly deductible is also a relevant consideration in determining whether expenditure on travel from his home to and from "home" sporting events or training are allowable.

You employees are not sportspeople and the circumstances of their employment are not comparable to the circumstances that existed in Ballesty. Therefore the Ballesty exception cannot be applied.

It is also relevant to note when considering the Ballesty decision that subsequent cases have questioned the breadth of diversion the decision took from established principles. For example, in Genys, Northrop J commented at 4481:

The decision in Ballesty seems unduly wide and difficult to recognise with the clear principles stated in Collings.

(b) Employment commences at the time of leaving home

The third exception to the general principle in Lunney is where the employee's employment commences at the time they leave home.

In FC of T v. Collings 76 ATC 4254; 6 ATR 476 (Collings) the taxpayer who was required to be on call 24 hours a day was allowed a deduction for motor vehicle expenses incurred in travelling between her home and work outside of her normal daily journeys to and from work. IT 112 summarises:

11. … The taxpayer was involved in supervising a major conversion in the computer facilities which her employer provided for its customers. In order to assist in diagnosing and correcting computer faults while at home, she was provided by her employer with a portable terminal which connected to the computer through the telephone line. In accordance with the terms of her employment, she used the terminal at home in the performance of her duties. If she could not resolve the problem over the telephone, she would return to the office in order to get the computer working. Rath J. in the Supreme Court of New South Wales held that the expenses in respect of her travelling between her home and work outside the normal daily journey were, to use his Honour's words, "in the special circumstances of this case" outgoings incurred in gaining or producing her assessable income, and were not of a private or domestic nature and were accordingly allowable deductions under section 51.

12. Rath J. stated that the abnormal journeys to and from home were made necessary by the very nature of the employment and of the taxpayer's duties. The taxpayer had a very special employment. She was not really in a position similar to those employees who have to be on stand-by duty at their homes and are required to obey a summons to cope with some emergency. She was engaged on a special assignment and was continuously on duty wherever she was. The taxpayer was not choosing to do part of the work of her job in two separate places; unless she were to spend all her time in the office with the computer, she must have more than one place of work. The two places of work are a necessary obligation arising from the nature of her special duties. When called at her home, the taxpayer immediately had the responsibility of correcting the malfunction in the computer. She might there and then diagnose the trouble, and provide the remedy; or she might decide that she would have to make the journey to the office, and if she took this course she was during the journey on duty in regard to the particular problem that had arisen.

IT 112 discusses the application of the Collings decision noting that it is not anticipated that the same circumstances will often arise. At paragraph 21 IT 112 states:

(b) cases comparable with Collings:

(i) Although it is not anticipated that the same circumstances present in this case will arise very often in other cases, expenditure on travelling between a taxpayer's home and his work, outside the normal daily journey, may be allowed where the facts are comparable with the special circumstances which arose in Collings. The journeys to and from home were made necessary by the special nature of the taxpayer's employment whereby she was engaged on a special assignment and was continuously on duty wherever she was. She was not choosing to do part of the work of her job in two separate places; the two places of work were a necessary obligation arising from the nature of her special duties.

(ii) A distinction was drawn between the facts of this case and the position of employees who have to be on stand-by duty at their homes and who are required to obey a summons to cope with some emergency. As to such stand-by employees, see paragraph 21(a)(ii) above.

Paragraph 21(a)(ii) of IT 112 states:

(i) In the case of a taxpayer whose employment requires him to be on stand-by duty at home, the deductibility of expenditure in travelling from home to a place of work is a question of fact to be decided according to the circumstances of each case. For example, the mere fact that an airline pilot is on stand-by duty at home is not enough. However, a medical practitioner who holds an appointment at a hospital and is required by the terms of his appointment to be accessible by telephone to cope with emergency cases; and who gives instructions to the hospital staff by telephone before setting out to travel to the hospital, may incur deductible expenses in travelling to and from the hospital where it is demonstrable that his responsibility for a patient begins at home as soon as he received a telephone call and he might properly be regarded as having commenced his duties at home on receiving the call. Cf. Owen v. Pook (1970) AC 244.

Your employees are not continuously on duty wherever they are, and particularly, they are not continuously on duty in their home states before they travel to the project location (the travel in question). The facts of Collings are not comparable to your employees' circumstances and therefore the exception that arose in Collings is not applicable.

(d) Itinerant employment

The fourth exception is where the taxpayer's employment is inherently itinerant in nature. The case of Weiner has been discussed above and applying the principles arising from that case and set out in IT 112 and the principles regarding itinerancy discussed in TR 95/34, it has been concluded that your employees' employment is not itinerant in nature. Therefore, this exception is not relevant to your employee's circumstances.

Conclusion

When you provide the rotational flights to your employees you provide them with a residual fringe benefit in accordance with section 45 of the FBTAA. The taxable value of the residual fringe benefit provided cannot be reduced by the use of the otherwise deducible rule contained in section 52 of the FBTAA as, had your employees incurred the expense of the flights themselves they would not have been entitled to an income tax deduction. When your employees are travelling on the rotational flights they are travelling to and from work, as opposed to travelling on work duties and none of the exceptions to the general principles in Lunney apply to your employees' circumstances. Therefore you will incur a fringe benefits tax liability in relation to the rotational flights provided to your employees.

Question 2

Summary

Detailed reasoning

Will a fringe benefit arise in relation to the food allowance paid to your employees?

You provide the employees who reside in the houses with a food allowance to meet the additional cost of food while they are residing and working at the project site.

MT 2030 confirms that if the allowance is a travelling allowance it is not a fringe benefit:

35. …travelling allowances form part of the employee's assessable income against which appropriate deductions may be allowed for the cost of meals, accommodation and incidental expenses incurred while the employee is travelling in the course of carrying out the duties of employment.

It has been concluded at question 1 above that the relevant employees are not travelling in the course of carrying out the duties of their employment. Therefore the allowance is not a travelling allowance but is potentially a fringe benefit.

The most relevant type of fringe benefit in relation to the allowance is a living-away-from-home allowance fringe benefit.

Subsection 30(1) of the FBTAA sets out the requirements for an allowance to be considered to be a living-away-from-home allowance (LAFHA). Subsection 30(1) states:

Where:

(a) at a particular time, in respect of the employment of the 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 summarising the requirements of subsection 30(1), an allowance will be a living-away-from home-allowance if:

1. some or all of the allowance is in the nature of compensation to the employee for additional expenses or additional expenses and other additional disadvantages;

2. the additional expenses are not deductible expenses; and

3. the additional expenses and other disadvantages arise because the duties of employment require the employee to live away from his or her normal residence.

These conditions are considered below:

1. Is the allowance in the nature of compensation for additional expenses incurred by the employee?

The allowance is paid as compensation for the food expenses incurred by the employees while they reside in the housing accommodation at the project site. As these expenses would not have been incurred by the employees if they had been living at their normal residences this condition is met.

2. Are the additional expenses deductible expenses?

For an allowance to be a LAFHA the additional expenses need to be non deductible expenses (a payment for additional disadvantages only cannot be a LAFHA: Atwood Oceanics Australia Pty Ltd v FC of T 89 ATC 4808).

Subsection 136(1) defines 'deductible expenses' 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).

As discussed above in relation to question 1, in general terms section 8-1 of the ITAA 1997 allows a deduction to be claimed by an employee for a loss or outgoing incurred in gaining or producing assessable income, provided the loss or outgoing is not of a capital nature, a domestic nature or incurred in relation to gaining or producing exempt income or non-assessable non-exempt income.

Further, various court decisions have concluded that, generally food expenses incurred while away from home are essentially living expenses of a private or domestic nature and therefore not deductible (FC of T v Cooper 91 ATC 4396; (1991) 29 FCR 177 (Cooper); Federal Commissioner of Taxation v Toms 20 ATR 466; 89 ATC 4373 (Toms)). However, there are two exceptions to this general rule. These are:

· where the employee is travelling in the course of their employment; or

· where the factual situation is comparable to the situation considered by the Federal Court in Roads and Traffic Authority of NSW v Federal Commissioner of Taxation 26 ATR 76; 93 ATC 4508 (RTA).

As previously discussed it has been concluded that the employees are not travelling in the course of their employment.

Guidance as to whether food expenses are deductible where an employee is not travelling for work purposes is provided by the decision in RTA. Hill J in his judgement referred to the decision of the Full Federal Court in Cooper before stating at ATC 4521:

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.

Hill J then distinguished the situation being considered from that which existed in Toms. At ATC 4522 Hill J stated:

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.

The recent case of Hancox v Federal Commissioner of Taxation [2013] FCA 735 (Hancox) provides further guidance for determining whether expenses are deductible in situations similar to yours. The case considered both whether the employee was travelling in the course of his employment and whether the expenses were deductible in accordance with the RTA decision.

In Hancox the employee had a permanent place of residence in SA and was employed on a permanent full time basis in Port Hedland, WA on a fly-in fly-out basis. The employer flew the employee into and out of Port Hedland every four weeks and paid the employee an allowance while he lived in temporary accommodation in Port Hedland in lieu of providing him with food and board. In the relevant income tax year, the applicant included the allowance in his assessable income and claimed deductions for work related travel expenses. The taxpayer appealed to the Federal Court against a decision made by the Commissioner in relation to the allowance and deductions.

At paragraph 8 Basanko J discussed the interaction between the deductibility of the expenses and the classification of the allowance:

8. If the allowance of $18,000 fell within the terms of the above subsection [LAFHA provisions of subsection 30(1) of the FBTAA], then two matters followed. First, the allowance or benefit would be neither assessable income or exempt income of the applicant (s 23L of the Income Tax Assessment Act 1936 (Cth) "ITAA 1936"). In other words, it would not be part of the applicant's assessable income by virtue of s 15-2 of the Income Tax Assessment Act 1997 (Cth) ("ITAA 1997"). Secondly, and as part of the decision that the allowance fell within the terms of s 30(1) of the FBTAA, the claimed expenses of $36,124 would not be deductible expenses within s 30(1) of the FBTAA and would not be deductible expenses within s 8-1 of the ITAA 1997. That second matter follows because it is clear in this case (and not in dispute) that the allowance of $18,000 is in the nature of compensation to the applicant for the additional expenses of $36,124. The respondent and then the Tribunal found that the allowance of $18,000 fell within the terms of s 30(1) of the FBTAA.

The taxpayer submitted that the allowance was not a LAFHA but formed part of his assessable income by reason of section 15-2 of the ITAA 1997, that the expenses were deductible expenses within section 8-1 of the ITAA 1997 and that the allowance was compensation for these expenses and not a s30(1) LAFHA allowance.

Basanko J summarised the relevant case law before concluding that the situation was distinguishable from the RTA case, the expenses were not deductible expenses and that the allowance was a LAFHA:

50 … 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 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.

54 In my opinion, the expenses of $36,124 were not incurred in gaining or producing the applicant's assessable income and were not deductible expenses within s 8-1(1)(a) of the ITAA 1997. It is not necessary for me to consider whether the expenses were of a private nature within s 8-1(2)(b) (Handley v The Commissioner of Taxation of the Commonwealth of Australia (1981) 148 CLR 182; Commissioner of Taxation v Cooper). As the expenses were not within s 8-1(1)(a), they were not "deductible expenses" within s 30(1) of the FBTAA. The allowance of $18,000 fell within s 30(1) and the Tribunal did not err in so concluding.

Considering the further guidance provided by Hancox, it is considered that your employees' situation, as the taxpayer's was in Hancox, is distinguishable from the RTA decision. Similarly to what was concluded at paragraph 53 of Hancox, the occasion of the expenditure is your employees' choice to live in their home states rather than near the worksite and as such, the expenses are not incurred in gaining or producing assessable income and therefore, are not deductible expenses.

3. Do the additional expenses and other disadvantages arise because the duties of their employment require the employees to live away from their normal residences?

In considering this question it is necessary to determine whether the employees are living away from their normal residences.

Subsection 136(1) of the FBTAA defines 'normal residence' as:

normal residence, 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

The FBTAA does not define 'usual place of residence'. However, in subsection 136(1) it does define a 'place of residence' 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.

In the absence of a legislative reference it is relevant to refer to the ordinary meaning of 'usual'. The Macquarie Dictionary defines 'usual' to mean:

1. habitual or customary: his usual skill.

2. such as is commonly met with or observed in experience; ordinary: the usual January weather.

3. in common use; common: say the usual things.

noun

4. that which is usual or habitual.

phrase

5. as usual, as is (or was) usual; in the customary or ordinary manner: he will come as usual.

Guidelines for determining an employee's usual place of residence are provided by MT 2030.

Paragraphs 15 to 18 refer to various decisions of Taxation Boards of Review relating to the former 51A of the Income Tax Assessment Act 1936 (ITAA 1936). In referring to these decisions paragraph 14 of MT 2030 states:

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.

Further discussion occurs at paragraphs 19 to 25. Paragraph 20 provides the following general rule:

Employees who move to a new locality to take up a position of limited duration with an intention to return to the old locality at the end of the appointment would generally be treated as living away from their usual place of residence. 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.

In applying these principles, your employees' homes that they return to during their time off of the rotation are their normal residences. Therefore, during the period in which they reside at the project location, the employees will be living away from their normal residences.

When the employees are working at the project location they work long rostered hours including some weekends. Due to this working arrangement the relevant employees remain at the project location for the whole time they are rostered on and do not return to their homes on the weekends. The employees must perform the duties of their employment at the project location - they cannot work remotely from their home state. The employees are required by the duties of their employment to live away from their normal residences.

Conclusion

The employees are being paid an allowance as compensation for additional non deductible expenses to which they are subject by reason that the duties of their employment require them to live away from their normal residences. Therefore the requirements of subsection 30(1) of the FBTAA are satisfied and the allowance is a LAFHA fringe benefit.

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