Edited version of your written advice

Authorisation Number: 1012779591405

Ruling

Subject: Fringe benefits tax ~ Exempt fringe benefits ~ Exempt residual benefits

Question 1

Is Fringe Benefits Tax (FBT) payable by the Taxpayer on accommodation benefits provided to non-resident individuals temporarily working in Australia on a short term assignment?

Answer

No. The taxable value of the fringe benefit in respect of providing accommodation or reimbursements for expenses incurred for accommodation will be reduced to nil by applying the otherwise deductible rule in section 52 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) .

This ruling applies for the following periods:

1 April 2014 to 31 March 2015

1 April 2015 to 31 March 2016

The scheme commences on:

1 April 2014

Relevant facts and circumstances

The Taxpayer is an Australian resident company. It is a part of a global management consulting company. The nature of consulting work is project based and the business model matches the right skills to the project to appropriately serve their clients.

A client project in Australia may require that the Taxpayer sources employees from their global network on a temporary basis. Specialist skills may be required on a project and it will look to source employees who have the relevant skills from overseas offices.

Overseas based employees who work on Australia based projects will travel to Australia to work for a short period of time to complete their part of the project. The amount of time that the employee will work in Australia is typically pre-determined as a part of a project plan.

Fact Pattern

The descriptions of the employees to which this private ruling applies are the employees who:

• at law, they continue to be employees of their home country employer whilst seconded to the Taxpayer;

• are travelling to Australia to work on a project for risk and account of the Taxpayer;

• are typically present in Australia for a period of less than 99 days;

• are required to work for the entire period they are in Australia;

• they do not bring their family to Australia;

• they typically retain a permanent home outside of Australia;

• the accommodation is arranged by the Taxpayer in accordance with its temporary accommodation guidelines;

• any accommodation costs are in addition to their usual requirements in their home country; and

• accommodation costs in Australia are directly related to their employment and are either met by the Taxpayer or paid by the employee after-which a reimbursement is made in full for the actual expenditure.

The employees are located from various locations overseas. In some cases the employees may currently be non-resident Australian citizens or permanent residents (who are not returning permanently to Australia).

Relationship between the Taxpayer and the Home Country Employer

The primary objective of the travel is to meet project needs of the Taxpayer in Australia. The arrangement between the Taxpayer and the Home country entity is explained in this manner:

Policy

The relevant employees have an agreement with the Taxpayer (a Cross Border Agreement) for the period they are working on the project. The Cross Border Agreement is necessary for meeting the management requirements and to comply with certain legal and immigration requirements.

Direction and Control

The Taxpayer provides the relevant employees with instructions as to the activities to be undertaken which will be carried out at either the Australian work premises or client premises, under the control and responsibility of the Taxpayer.

While working in Australia the employees will need to comply with the Australian entities' regulations, risk management and quality control protocols.

The Taxpayer bears the responsibility for any work produced by the employees and would be responsible for claims arising out of any defective work produced by the employees or for any act of fraud or negligence while the employee is working in Australia.

Costs and Allowances

The Home country employer will continue to pay the employee's salary into their home country bank account and meet home country social security costs. The Taxpayer typically bears the cost of the employees, being salaries that are recharged as well as meeting additional costs such as visa costs, travel and accommodation etc.

The Taxpayer will secure temporary accommodation that is as close as practically possible to the project site for the duration of the employee's stay in Australia. It will either meet the accommodation costs or the employee will pay the costs and seek reimbursement.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 paragraph 20(b)

Fringe Benefits Tax Assessment Act 1986 section 20A

Fringe Benefits Tax Assessment Act 1986 section 21

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 subsection 47(5)

Fringe Benefits Tax Assessment Act 1986 section 47A

Fringe Benefits Tax Assessment Act 1986 section 52

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 section 137

Income Tax Assessment Act 1997 section 8-1

Taxation Administration Act 1953 section 12-35 of Schedule 1

Reasons for decision

Summary

The benefit in respect of accommodation is a fringe benefit. However, the taxable value of the fringe benefit can be reduced to nil by applying the otherwise deductible rule under section 52 of the FBTAA. It can be reduced to the extent the employee would be entitled had the employee incurred the expense.

Detailed reasoning

Fringe benefit

In order to determine whether the Taxpayer can apply the otherwise deductible rule, we need to firstly determine whether the provision of accommodation is a fringe benefit.

The definition of a benefit is broad and includes any right, privilege, service or facility.

A benefit will be a fringe benefit as defined in subsection 136(1) of the FBTAA if it has been provided to an employee or an associate of an employee, in respect of the employee's employment by

• an employer

• an associate of an employer or

• a third party under an arrangement with an employer.

Additionally, the benefit is not excluded on the basis that it is an exempt benefit.

The definitions of an 'employee' and 'employer' in subsection 136(1) of the FBTAA are based on the payment or liability to pay salary or wages:

• current employee means a person who receives, or is entitled to receive salary or wages…

• current employer means a person…who pays, or is liable to pay, salary or wages…

Salary or wages is defined in subsection 136(1) to mean:

a payment from which an amount must be withheld (even if the amount is not withheld) under a provision in Schedule 1 to the Taxation Administration Act 1953 (TAA) listed in the table, to the extent that the payment is assessable income…

Section 12-35 of Schedule 1 to the TAA is one of those provisions. It says:

An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

The salaries of the non-resident employees are paid by their home country employers whilst they work in Australia. As the home country employers are not Australian entities and do not have a permanent establishment in Australia, the home country employers will not have a withholding obligation in relation to their salaries or wages.

However, section 137 of the FBTAA extends the circumstances in which a person will be deemed to be an employee.

Based on the facts, the Taxpayer bears the cost of the employees (being salaries that are re-charged and meeting additional costs such as visa costs, travel and accommodation). In applying section 137, the employees are considered the Taxpayer's employees in respect of the additional benefits it provides because the company would have had withholding obligations if it made a cash payment to the employees instead.

Therefore, it follows that these employees are treated as the Taxpayer's employees for the purposes of the FBTAA in respect of the provision of the accommodation or reimbursement of accommodation expenses.

Furthermore, the Taxpayer is providing a benefit when it provides the accommodation or reimburses the employee for expenses he or she incurs for the accommodation. It is accepted that these benefits are provided in respect of the employee's employment as there is a material connection with his or her employment.

Therefore benefits provided in respect of accommodation will be fringe benefits unless they are excluded on the basis that they are exempt benefits.

Accommodation

Under the arrangement, the Taxpayer will either provide accommodation to the employees, or will reimburse the accommodation expenses paid by the employees.

The provision of accommodation is a fringe benefit provided by the Taxpayer to the employees. The benefit will be a residual benefit as defined in section 45 of the FBTAA. Alternatively, a reimbursement will be an expense payment benefit as it comes within paragraph 20(b) of the FBTAA.

For the purpose of this Ruling, the provision of accommodation or reimbursement of the employee's accommodation expenses will not be exempt under either section 21 or subsection 47(5) of the FBTAA.

Sections 20A and 47A of the FBTAA are also relevant in relation to the benefits in respect of accommodation.

Section 20A of the FBTAA provides that an expense payment benefit that is covered by a No-private-use declaration - expense payment benefits is an exempt benefit.

A condition of this exemption is that the expense payment benefit that arises from the reimbursement of expenditure is wholly employment related and that, as such, under the 'otherwise deductible' rule in section 52 of the FBTAA, would have a taxable value of nil.

In such instances, the employer is able to make an annual declaration. The declaration must cover all expense payment benefits provided to employees where the employer is able to state that the benefits were provided only for employment-related purposes and that there was no private portion.

A similar exemption exists in section 47A of the FBTAA for residual benefits that arise from the use of the property that is subject to a consistently enforced prohibition on private use and that, as such, under the 'otherwise deductible' rule, would have a taxable value of nil.

In order to determine whether sections 20A or 47A can apply it is necessary to determine whether the employees are entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) had the Taxpayer not provide the benefits.

The main issue that needs to be considered therefore is whether the employees are living away from their usual place of residence or are travelling in the course of performing their duties of employment. This is a question of fact and degree based on the circumstances of the case.

Some guidance is provided in Miscellaneous Taxation Ruling MT 2030 - Fringe benefits tax : living-away-from-home allowance benefits (MT 2030) where it considers the difference between travelling and living away from home allowances. Specifically, paragraphs 37 to 43 of MT2030 outline various factors that may be considered in making the distinction. Some of the factors include:

• No change to their employment location;

• No change to their place of residence;

• Generally not accompanied by spouse or family; and

• Stay away from their employment location and staying for short periods of time.

The Commissioner accepts that nature of the projects undertaken by the identified employees is more akin to travels to carry out the requirements of their job.

Firstly, there is no change of employment location (i.e. the employees do not move and/or take up temporary residence away from their usual place of residence in order to carry out employment duties for a time at the new workplace). The employment location for the employees remains in their home country. Secondly, the employees typically retain their usual place of residence in their home country, and their spouse and family (if any) do not accompany them to Australia. Furthermore, the nature of the accommodation whilst in Australia is characteristically short term (i.e. hotels or service apartments), and is as close as practically possible to the employee's work place.

Thirdly, the Commissioner also accepts that the period the employees are in Australia can be considered a short period of time. The following factors are considered relevant in establishing this conclusion: the nature of its business is providing global management consulting and outsourcing services; the nature of the duties performed by the employees regularly involves performing those duties at another locality; travelling is a regular incident of their occupation; and their travels typically do not exceed 99 days.

Therefore, based on these facts the Commissioner considers the Taxpayer's employees (the subject of this ruling) to be travelling in the course of performing their duties of employment. As a result, had the employees incurred the appropriate unreimbursed accommodation expenses themselves, it can be concluded that an income tax deduction would have been allowable under section 8-1 of the ITAA 1997.

Therefore since the employees are entitled to claim a deduction, section 20A of the FBTAA in the case of an expense payment benefit, or 47A of the FBTAA in the case of a residual benefit can apply.

Accordingly, there is no fringe benefits tax liability in respect of the provision of accommodation by the Taxpayer to the employees as the taxable value of the benefit will be reduced to nil under the 'otherwise deductible' rule in section 52 of the FBTAA.

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