Edited version of your written advice

Authorisation Number: 1012746199831

Ruling

Subject: FBT - Business Travel Expenses

Question 1

Will the employer be able to use the otherwise deductible rule under section 52 of the Fringe Benefits Tax Assessment Act 1986 to reduce the taxable value of the residual benefits being the interstate apartment accommodation to the employees to nil?

Answer

Yes.

This ruling applies for the following period:

1 April 2014 to 31 March 2015

The scheme commences on

1 April 2014

Relevant facts and circumstances

The employer has arrangements in place for paying the business travel expenses of employees. The employer leases residential apartments and provides them for the use of its employees whilst they are travelling for business. This has been done as an alternative to providing hotel accommodation for regular business travellers.

The employer is making payments on behalf of its employees. The payments are for rent and are made directly to the property landlords.

The employer has provided details of two arrangements.

First arrangement:

• The employee lives with their family.

• They regularly commute to their employer's interstate office and typically works in the interstate office several days per week with the other days in their employer's office.

• The employer rents an apartment interstate which is made available to the employee while they are working there on business. The tenancy is in the employer's name and the employer pays rent directly to the landlord.

• The employee was originally assigned to the home office and is expected to return to being mainly home based at some stage but it is currently unknown as to when this will occur.

• The employee's role interstate commenced several years ago to lead the establishment of the interstate office (which was a new company location at the time). They continues in that role.

• The apartment is available for use by other employees but to date has not actually been used by any other employees.

Second arrangement:

• The employee lives with their family.

• They regularly commutes to their employer's interstate office and typically works in the office several days per week with the other day in their employer's base office.

• The employer rents an apartment interstate which is made available to the employee while they are working there on business. The tenancy is in the employer's name and the employer pays rent directly to the landlord.

• The employee was originally assigned to the base office and is expected to return to being mainly home based within the next two years.

• The employee was assigned to establish the interstate office initially as a several year arrangement but now extended for another several years.

• The apartment is available for use by other employees but to date has not actually been used by any other employees.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Section 50

Fringe Benefits Tax Assessment Act 1986 Section 51

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

Reasons for decision

The term 'fringe benefit' is defined under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). In general terms, a fringe benefit is a payment to an employee, but in a different form to salary or wages, provided in respect of employment.

A benefit provided in respect of employment effectively means a benefit provided to somebody because he or she is an employee.

The term benefit includes rights, privileges or services.

Residual fringe benefit

Any fringe benefit that is not subject to the rules covered under Division 2 to 11 of the FBTAA is called a residual fringe benefit, which is covered under section 45 of the FBTAA. A residual benefit could include, for example, the provision of services (e.g. travel, or the performance of professional or manual work) and the use of property. It could also include the provision of insurance coverage (e.g. health insurance coverage under a group policy taken out by an employer for the benefit of employees).

Section 51 of the FBTAA determines the taxable value of external residual fringe benefits provided over a period to employees, if the employer paid for the benefit under an arm's length transaction.

The taxable value of a residual fringe benefit may be reduced in accordance with the otherwise deductible rule (ODR) under section 52 of the FBTAA. This rule allows the taxable value of the fringe benefit to be reduced by the amount that an employee would have been entitled to claim as an income tax deduction if the employer had not provided a residual benefit to the employee and the employee paid for it as an arm's length consumer.

Accommodation expenditure incurred by an employer for its employees work related interstate travel constitutes a residual fringe benefit to the employee. However, where the accommodation expenditure relates to both work related and private purposes, an apportionment of the expense may be required, in order to use the ODR.

Income tax deductibility

In deciding whether the cost of the accommodation is deductible, section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can deduct a loss or outgoing from your assessable income to the extent that it is incurred in gaining or producing your assessable income. The loss or outgoing must be relevant or incidental to gaining or producing assessable income (Ronpibon Tin N.L. and Tongkah Compound N.L. v. Federal Commissioner of Taxation (1949) 78 CLR 47; 8 ATD 431) (Ronpibon case). Further, you cannot deduct a loss or outgoing that is of a private or domestic nature.

Generally, expenses for interstate travel undertaken by employees for work-related activities are deductible. Accommodation expenses paid by an employee for work related interstate travel demonstrates the necessary nexus between incurring of the expense and the earning of income. The employee would be entitled to deduction under section 8-1 of the ITAA 1997.

Conclusion

The full cost of the interstate apartment accommodation would be income tax deductible in the hands of the employee had the employer not provided the residual fringe benefit.

Therefore, provided the accommodation is not used for private purposes, the taxable value of the residual fringe benefit can be reduced to nil, by the use of the ODR in section 52 of the FBTAA.

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