Edited version of your written advice

Authorisation Number: 1012790534788

Ruling

Subject: Travel allowance

Question 1

Is your foreign employment income assessable in Australia?

Answer

Yes.

Question 2

Is the per diem allowance you received to cover the costs of meals and incidentals whilst travelling overseas on work taxable income?

Answer

Yes

Question 3

Is the cost of meals and incidentals you incurred deductible against the per diem allowance received whilst in xxx?

Answer

No

Question 4

Can you access the reasonable amounts of overseas travel expenses as set out in TD 2012/17?

Answer

No

This ruling applies for the following period ending:

30 June 20YY

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You are an Australian resident for taxation purposes.

You are employed by a mining services company.

Your employment commenced in 20XX.

You are paid a base salary for a rotating four weeks on/four weeks off roster on a fly in fly out basis between Australia and various other countries.

For all of the 20YY financial year your roster took you to xxx job sites.

You were paid a daily bonus whilst on rotation in xxx. You also received a per diem allowance to cover the cost of meals and incidentals whilst in xxx.

Your accommodation is provided by your employer but you are responsible for the cost of meals and incidentals.

When in xxx you are housed in various staff housing accommodation sites at the discretion of your employer.

Each day whilst on rotation you must attend the xxx base/office of your employer, where you are given your daily assignment. There are various offshore rigs you may be sent to on any given work day.

You maintain a house in Australia where your wife and children remain whilst you are away on work.

You spent a total of 184 days in xxx for the 20YY financial year.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 23AG

Income Tax Assessment Act 1936 subsection 23AG(1).

Income Tax Assessment Act 1936 subsection 23AG(1AA).

Income Tax Assessment Act 1936 subsection 23AG(7).

Income Tax Assessment Act 1936 section 23L.

Income Tax Assessment Act 1997 subsection 6-5(2).

Income Tax Assessment Act 1997 section 8-1.

Income Tax Assessment Act 1997 section 15-2.

Reasons for decision

Question 1

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australia resident for income tax purposes includes income gained from all sources, whether in or out of Australia. 

Subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that where an Australian resident for tax purposes is engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from that service will be exempt from income tax in Australia.

Foreign service includes service in a foreign country in the capacity as an employee (subsection 23AG(7) of the ITAA 1936). Foreign earnings include salary and wages income (subsection 23AG(7) of the ITAA 1936).

Section 23AG of the ITAA 1936 has been amended so that foreign employment income derived by Australian residents will only be exempt in certain circumstances. These amendments are effective from 1 July 2009.

Subsection 23AG(1AA) of the ITAA 1936 provides that foreign earnings are not exempt from tax unless the continuous period of foreign service is directly attributable to any of the following:

• the delivery of Australian official development assistance by the taxpayer's employer (generally provided by AusAID or the Department of Foreign Affairs and Trade);

• the activities of the taxpayer's employer in operating a public fund covered by the deductible gift recipient categories overseas aid fund and developed country disaster relief fund;

• the activities of the taxpayer's employer where they are a charitable institution or religious institution which is income tax exempt because they are a prescribed institution located outside Australia or pursuing objectives principally outside Australia;

• the taxpayer's deployment outside Australia as a member of a disciplined force of Australia (generally considered to be the Australian Defence Force or Australian Federal Police); or

• an activity of a kind specified in the regulations.

From the information provided, your employment is a private commercial contract and does not fall into one of the exemption categories listed above.

As you do not satisfy any of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936, your employment income derived from xxx is not exempt from income tax in Australia under subsection 23AG(1) of the ITAA 1936. 

Consequently, your foreign employment income is assessable in Australia under Subsection 6-5(2) of the ITAA 1997. 

Question 2

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

Allowances are generally regarded as assessable income except where they are fringe benefits within the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Income derived by a taxpayer through the provision of a fringe benefit by an employer is not assessable income in the employee's hands by the operation of section 23L of the ITAA 1936.

In your case you received a per diem allowance to cover the cost of meals and incidentals whilst working overseas in xxx.

Taxation Determination TD 2011/1 Income tax and fringe benefits tax: can a non-resident entity be:

(a) required to withhold amounts from salary and wages paid to an Australian resident employee for work performed overseas under section 12-35 of Schedule 1 to the Taxation Administration Act 1953?

(b) subject to obligations under the Fringe Benefits Tax Assessment Act 1986 in relation to benefits provided to an Australian resident employee in relation to work performed overseas? provides guidelines in your circumstances.

TD 2011/1 states that if a non-resident entity does not have PAYG withholding obligations, no obligations under the FBTAA can arise for the non-resident entity in relation to benefits provided to that employee.

As your employer does not pay PAYG withholding tax on your behalf, the FBTAA provisions do not apply. Therefore your per diem allowance for meals and incidentals is not regarded as an allowance under the FBTAA.

There is no other relevant exemption in relation to your allowance. Therefore your allowance is assessable income under section 15-2 of the ITAA 1997.

Question 3

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

Taxation Ruling TR 2004/6 explains that a taxpayer cannot automatically claim a deduction just because they receive an allowance. The expense must meet the requirements of section 8-1 of the ITAA 1997.

Accommodation, meal and incidental expenses are ordinarily not deductible as they are private and domestic in nature.

An exception is where a taxpayer is travelling in the course of performing their work duties, for example, an interstate truck driver who travels away from home overnight. In these types of cases, the accommodation, meal and incidental expenses incurred while the taxpayer is travelling are incidental to the proper carrying out of their employment function and cease to be of a private and domestic nature.

In considering the deductibility of travel expenses a distinction is made between travel to work and travel on work. It is only if the duties of the job require a taxpayer to travel in the course of undertaking their work duties that the taxpayer's expenses can be deducted (Taylor v. Provan 1975 AC 194).

A deduction is generally not allowable for the cost of travel by an employee between home and their normal workplace as it is considered to be a private expense. The cost of this travel is incurred to put you in a position to perform your duties of employment, rather than in the performance of those duties. (Taxation Ruling TR 95/34)

In your case, you are working and living overseas on a roster basis of four weeks on and four weeks off. Your employer supplies your accommodation and pays you a per diem allowance to cover your meals and incidentals. It is considered you are not travelling on work rather you are travelling to work and stay at your work location for the period of your roster.

Therefore, your meal and incidental expenses are considered to retain their character as living expenses. As these expenses are private in nature, a deduction is not allowable. This conclusion is not altered by the fact that your employer paid you an allowance.

Question 4

The reasonable amounts are only relevant where a taxpayer is travelling on work. You are not travelling on work as your regular place of work is in xxx. Therefore, the reasonable amounts are not applicable in your situation.

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