Edited version of your written advice

Authorisation Number: 1012735875673

Ruling

Subject: Living away from home allowance fringe benefits

Question 1

After 30 June 2014, do you use the provisions of Division 7 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) that applied when the relevant employees contract of employment commenced in July 2011 to determine the taxable value of the living away from home allowance fringe benefit?

Answer

No

Question 2

After 30 June 2014, can you apply section 31 of the FBTAA to reduce the amount of the LAFHA fringe benefit provided to the relevant employees by any exempt accommodation component and any exempt food component?

Answer

No

Question 3

After 30 June 2014, can you start a separate 12-month period for LAFHA fringe benefits paid in relation to new employment contracts with the relevant employees to work in the same location for the purposes of their employment?

Answer

No

This ruling applies for the following periods:

Year ended 31 March 2015

Year ended 31 March 2016

The scheme commences on:

1 July 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You operate a business with offices in Australian states.

In July 20XX, you signed employment contracts with two employees from City A (the relevant employees) requiring them to work in City B.

The relevant employees maintain a home in City A, returning home twice a month.

Under the employment contracts you provide the relevant employees with the following benefits as LAFHA fringe benefits covered by subsection 30(1) of the FBTAA:

• Accommodation in the company premises,

• Utilities, including electricity, water and gas in the accommodation and the employees mess,

• Statutory food amounts for the employees and eligible family members.

The employment contacts do not contain an end date, but continue until all projects are completed.

The terms and conditions of the employment contact have not changed since July 20XX.

Throughout the period commencing 1 October 2012 to 30 June 2014 you applied section 31 of the FBTAA, and item 27 of the Tax Laws Amendment (2012 Measures No 4) Act 2012.

Section 31E of the FBTAA is not satisfied by the relevant employees.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Division 7

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 section 31C

Fringe Benefits Tax Assessment Act 1986 section 31D

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

Fringe Benefits Tax Assessment Act 1986 subsection 31D(2)

Fringe Benefits Tax Assessment Act 1986 paragraph 31D(2)(b)

Fringe Benefits Tax Assessment Act 1986 subparagraph 31D(2)(b)(ii)

Fringe Benefits Tax Assessment Act 1986 paragraph 31D(2)(c)

Fringe Benefits Tax Assessment Act 1986 section 31E

Fringe Benefits Tax Assessment Act 1986 section 31F

Reasons for decision

Question 1

Summary

Any LAFHA fringe benefits you provide to the relevant employees after 1 July 2014 are subject to the current provisions of Division 7 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Detailed reasoning

Division 7 of the FBTAA provides for taxation of LAFHA fringe benefits. In 2012, Division 7 of the FBTAA was amended in relation to employees who live away from their normal residences on or after 1 October 2012 in respect of all allowances and benefits provided for the periods commencing on or after the 1 October 2012.

Generally, the current provisions of Division 7 of the FBTAA limit the availability of concessional treatment of LAFHA fringe benefits to:

• a period of 12 months,

• employees maintaining a home in Australia, and

• circumstances where substantiation and declarations have been provided.

Transitional law for existing arrangements

Items 27 and 28 of the Tax Laws Amendment (2012 Measures No 4) Act 2012 (the transitional provisions) provide transitional rules for living away from home arrangements that were in place prior to 1 October 2012.

In certain circumstances, the transitional provisions allow employers to disregard sections of the new law during 'the transitional period'. The 'transitional period' started on 1 October 2012 and ended at the earliest of:

(i) 30 June 2014; and

(ii) the time the eligible employment arrangement ends; and

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

In your circumstances

Although item 27 of the transitional provisions may have applied to your LAFHA fringe benefit arrangements with the relevant employees up to 30 June 2014, any LAFHA fringe benefits you provide to the relevant employees after that date are subject to the current provisions of Division 7 of the FBTAA.

Question 2

Summary

Section 31 of the FBTAA does not apply to LAFHA fringe benefits you pay to the relevant employees after 1 July 2014 as they do not satisfy section 31D. Section 31B of the FBTAA applies to the LAFHA fringe benefits.

As such, the taxable value of any LAFHA fringe benefit paid by you to the relevant employees after 1 July 2014 is the amount of the fringe benefit.

Detailed reasoning

The new rules in section 31, 31A and 31B of the FBTAA provide how to determine the taxable value of LAFHA fringe benefits:

Section 31 applies to the extent that the employee satisfies:

• section 31C (about maintaining an Australian home), and

• section 31D (about the first 12 months), and

• section 31F (about declarations).

Section 31A applies to fly-in fly-out or drive-in drive-out employees that satisfy:

• section 31E and section 31F, and where

• the employee has residential accommodation at or near his or her usual place of employment.

Section 31B applies to all other cases (in other words, where neither sections 31 nor 31A apply).

Section 31D of the FBTAA

For employees that were living away from their normal residences on 1 October 2012, employers treat the 'first 12 months' referred to in section 31D of the FBTAA as commencing on 1 October 2012 (item 28 of the transitional provisions).

Section 31D of the FBTAA applies in relation to an employee who, on or after 1 October 2012, lives away from his or her normal residence, and states:

31D(1)

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

31D(2)

Each of the following paragraphs applies for the purposes of subsection (1):

(a) the employer may pause the 12-month period;

(b) start a separate 12-month period if:

(i) the employer later requires the employee to live at another location for the purposes of that employment; and

(ii) it would be unreasonable to expect the employee to commute to that other location from an earlier location for which the employer provided a benefit of the same kind to the employee;

(c) other changes in the nature of that employment are irrelevant;

(d) treat as one employer any of the employee's earlier employers that is or has been an associate of the current employer.

In your circumstances

Under the current legislation in Division 7 of the FBTAA, the relevant employees must satisfy section 31D for section 31 to apply.

As the relevant employees were living away from their normal residence on 1 October 2012, item 28 of the transitional law applies to treat the 'first 12 months' (referred to in subsection 31D(1) of the FBTAA) as commencing on the 1 October 2012.

Applying section 31D of the FBTAA, you cannot extend the 'first 12 months' or start a separate 12-month period as:

• the 12-month period following 1 October 2012 was not paused by you (for a period within which you did not pay the LAFHA or the LAFHA was not concessionally treated), and

• the relevant employees continue to live in the same location as they lived during the 'first 12-months' within which you provided the fringe benefits.

The relevant employees do not satisfy section 31D of the FBTAA as the LAFHA fringe benefits paid to them after 1 July 2014 do not relate to 'all or part of the first 12 months' that they are required to live away from home.

As section 31D of the FBTAA is not satisfied, section 31 does not apply. Additionally, as section 31E (about fly-in fly-out and drive-in drive-out employees) is not satisfied, section 31A does not apply.

As neither section 31 nor 31A of the FBTAA applies, section 31B applies to determine the taxable value of the LAFHA fringe benefits you pay to the relevant employees after 1 July 2014, being the amount of the fringe benefits provided.

Question 3

Summary

Under a new contact, the relevant employees would not be required to live at another location where it would be unreasonable for them to commute from the earlier location for which the same kind of benefit was provided.

As such, you cannot start a separate 12-month period under the new contract.

Detailed reasoning

Section 31D of the FBTAA must be satisfied for an employer to apply the concessional treatment in section 31.

Under paragraph 31D(2)(b) of the FBTAA, an employer can start a separate 12-month period if that employee is later required to live at another location for the purposes of their employment. However, the employer must be able to show that it would be unreasonable to expect the employee to commute to the new location from the earlier location for which a benefit of the same kind was provided (subparagraph 31D(2)(b)(ii) of the FBTAA).

The Fringe Benefits Tax - a guide for employers provides the following example clarifying the application of paragraph 31D(2)(b):

Example

Frank lives and works in Canberra. His employer asks him to work in Sydney for a period of nine months, for which a LAFHA will be paid. After that period of employment in Sydney, Frank returns to Canberra. The LAFHA fringe benefit provided to Frank for the nine months relates to part of the first 12 months that Frank is living away from his Australian home.

At a later time, Frank's employer asks him to work in Melbourne for a number of months. Because this is a new work location, a new 12-month period starts for any LAFHA paid to Frank during his time working in Melbourne.

Paragraph 31D(2)(c) of the FBTAA further clarifies that other changes in the employment arrangement, other than the location the employee is required to work, are irrelevant and cannot restart or extend the 12-month period.

In your circumstances

Paragraph 31D(2)(b) of the FBTAA applies if you later require the relevant employees to live at another location for the purposes of their employment.

As the relevant employees would not be required to live at another location, where it would be unreasonable for them to commute from the earlier location for which the same kind of benefit was provided, paragraph 31D(2)(b) would not apply and you cannot start a separate 12-month period.

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