Edited version of your written advice

Authorisation Number: 1012846891801

Date of advice: 30 July 2015

Ruling

Subject: Fringe benefits tax on travel arrangements

Question 1

Is the provision of accommodation a fringe benefit provided by the employer as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

If the provision of accommodation is a fringe benefit, does the otherwise deductible rule in section 52 of the FBTAA apply to reduce the taxable value of the benefit to nil?

Answer

Yes

Question 3

Where a per diem is paid to an employee, is the per diem subject to section 30 of the FBTAA?

Answer

No

Question 4

If the per diem is not subject to section 30 of the FBTAA, and the per diem is equivalent to, or less than, the reasonable travel expenses prescribed in the Commissioner's annual taxation determinations, is the per diem a travel allowance as defined in subsection 900-30(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

Question 5

Is the provision of transport costs a fringe benefit as defined in subsection 136(1) of the FBTAA?

Answer

Yes

Question 6

If the provision of transport is a fringe benefit, does the otherwise deductible rule in section 52 of the FBTAA reduce the taxable value of the benefit to nil?

Answer

Yes

Question 7

Where other expenses that are incidental to travel are reimbursed by the employer, is the reimbursement of these costs a fringe benefit as defined in subsection 136(1) of the FBTAA?

Answer

Yes

Question 8

If the reimbursements of the other expenses incidental to travel are fringe benefits, does the otherwise deductible rule in section 24 of the FBTAA reduce the taxable value of the benefit to nil?

Answer

Yes

This ruling applies for the following period(s)

Fringe benefits tax years ended 31 March 2014, 2015 and 2016

The scheme commences on

1 April 2013

Relevant facts and circumstances

Due to the nature of the overseas employer's business, it is customary for the employees to be working outside of their home country on various projects around the world (including Australia) in order to oversee the effective integration and testing of the product provided to their clients.

The typical continuous period an employee will be at any one client site for is around two to three weeks, however, in some instances there may be delays which led to the employee begin at client sites for a total continuous period of no more than 90 days.

So that employees can be deployed effectively to Australia, employees are typically provided with the following deployment support:

• Short term accommodation (hotel or serviced apartment) at or near the client site. The employee does not have a choice in relation to the accommodation supplier or the type of accommodation to be provided.

• Either provided with a per diem to cover the cost of reasonable food and incidental expenses or paid a daily allowance of a similar net amount. The incidental expenses that the per diem is intended to cover include purchase of personal items that need to be replenished, phone calls home, and other small expenses that arise as a result of being on a short term deployment.

• Flights to and from Australia at the beginning and end of the deployment.

• Reimbursement for the cost of the use of hire cars to commute between the hotels and client sites.

• Reimbursements of other expenses related to the performance of the official business (for example, the cost of medical insurance relating to the trip to Australia).

Whilst most of the above support is provided by the employer, in some cases it arranges for an associated company in Australia to provide accommodation and flight support for employees working on the project.

During the deployment of the employees to Australia, at all times the employee:

• Is subject to the terms and conditions of their employment with the overseas employer;

• Is subject to the ultimate control of the employer;

• Directly reports to their manager in the employer company

• Accrues leave with their employer;

• Receives their salary and other employment benefits from their employer;

• Is subject to the performance review procedures of their employer;

• Is not accompanied by family;

• Maintain their usual place of residence and living arrangements in their home country;

• Does not take annual leave and is not provided with home leave flights due to the short period of time that they are working at the client site; and

• Upon completing the projects in Australia, return to their home country.

A copy of the employer's travel policy was provided with the application.

Relevant legislative provisions

Section 20 of the FBTAA

Section 23 of the FBTAA

Section 24 of the FBTAA

Section 30 of the FBTAA

Section 45 of the FBTAA

Section 47 of the FBTAA

Section 50 of the FBTAA

Section 51 of the FBTAA

Section 52 of the FBTAA

Section 136 of the FBTAA

Section 8-1 of the ITAA 1997

Section 900-30 of the ITAA 1997

Reasons for decision

In order to more concisely answer the specific questions you have asked in your application, it is important for the Commissioner to consider whether the employees are travelling or living away from home.

Paragraphs 35 and 36 of Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits (MT 2030) refer to the distinction between travelling and living away from home:

.....it is important that living-away-from-home allowances are distinguished from travelling allowances paid to employees. Living-away-from-home allowances are taxable fringe benefits [ ], whereas 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.

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."

Paragraphs 37 to 43 of MT 2030 outline factors which may indicate an employee is travelling in the course of performing their duties of their employment, including:

(a) no change to their employment location;

(b) generally not accompanied by spouse or family;

(c) stay away from their employment location and residence for short periods of time; and

(d) no change to their place of residence.

Below is a consideration of these factors to the specific circumstances of this application:

(a) No change to their employment location

At all times the employees remain employed by the employer. They travel on behalf of their employer as required in order to carry out the requirements of their employment.

Employees generally travel to Australia as required, usually for two to three weeks, but occasionally longer if required.

Employees return to their home location overseas after their work is completed in Australia.

The employment location for the employees remains in their home country.

(b) Generally not accompanied by spouse or family

The spouses and family (if any) of the employees do not accompany them to Australia.

(c) Stay away from their employment location and residence for a short period of time

Paragraph 40 of MT 2030 states that 'the nature of the allowance is not to be determined by reference solely to the period for which it is paid'.

Paragraph 41 of MT 2030 states:

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.

Paragraph 39 of MT 2030 provides the example of academics studying on sabbatical leave 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.

In this instance, employees generally travel for two to three weeks, although longer occasions up to 90 days may be occasionally required.

(d) No change to their place of residence

The nature of the accommodation provided (hotels or serviced apartments) is short term. The employees have no choice in relation to the accommodation in which they stay; the accommodation is chosen to be at or near the client site.

Employees maintain their place of residence in their home country and their associated living arrangements are not changed due to the short term nature of their assignments to Australia.

In conclusion, on consideration of all the relevant factors, the Commissioner accepts that the employees are travelling in the course of their employment rather than living away from home.

Question 1

Summary

The provision of accommodation would be a benefit as defined in section 136 of the FBTAA.

Detailed reasoning

Pursuant to section 136 of the FBTAA, a fringe benefit is defined as:

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 provided to the employee or to an associate of the employee by:

(c) the employer; or

(d) an associate of the employer;

…

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

(f) a payment of salary or wages ... ; or

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

For the provision of the accommodation by the employer to be a fringe benefit as defined, a benefit must be provided by the employer (or an associate) to an employee in respect of their employment.

A benefit is defined in section 136 of the FBTAA as including any right, privilege, service or facility that is provided under an arrangement for or in relation to the provision of work.

In this instance, the employer provides short term accommodation for employees at or near a client site when they are required to travel to Australia in the course of performing the duties of the employment.

Accordingly, as the employees are engaged by, and performing work for, their employer, the provision of accommodation by the employer will be a benefit as defined by section 136 of the FBTAA.

Question 2

Summary

There will be no fringe benefits tax liability in respect of the provision of accommodation by the employer as the taxable value of the benefit will be reduced to nil under the otherwise deductible rule in section 52 of the FBTAA.

Detailed reasoning

The provision of accommodation is a fringe benefit which will be a residual fringe benefit as defined in section 45 of the FBTAA.

The exemption for accommodation in section 47(5) of the FBTAA will not apply as the employees are undertaking travel in the course of performing the duties of their employment.

The accommodation benefit provided by the employer will be an external period residual fringe benefit as it is not provided to members of the public and is for a specific period.

Subsection 51(a) of the FBTAA states that the taxable value of an external period residual fringe benefit provided by an employer, where it is purchased under an arm's length transaction, will be the amount paid or payable.

In these circumstances the employer purchases the accommodation from third parties in arm's length transactions, so the taxable value of the benefits under subsection 51(a) of the FBTAA will be the amounts paid.

However, the taxable value of the benefit may be reduced to nil under the 'otherwise deductible rule' (ODR) in section 52 of the FBTAA.

For the ODR to apply, it is necessary to establish that the employee would have been entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) had they incurred the expenditure on their accommodation.

Paragraphs 35 and 36 of MT 2030 explains that 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 their employment.

As the employees are undertaking travel in the course of performing the duties of employment, if they had incurred the 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, in these circumstances, there will be no fringe benefits tax liability in respect of the provision of accommodation by the employer as the taxable value of the benefit will be reduced to nil under the ODR in section 52 of the FBTAA.

Question 3

Summary

The per diem paid will not qualify as a LAFHA under section 30 of the FBTAA.

Detailed reasoning

As already discussed, the Commissioner accepts that the employees are travelling in the course of their employment rather than living away from home.

Accordingly, the per diem paid to the employees will not qualify as a LAFHA under section 30 of the FBTAA.

Question 4

Summary

The per diem is a travel allowance as defined in subsection 900-30(3) of the ITAA 1997.

Detailed reasoning

Subsection 900-30(3) of the ITAA 1997 defines a travel allowance as:

…an allowance your employer pays or is to pay to you to cover the losses or outgoings:

(a) that you incur for travel away from your ordinary residence that you undertake in the course of your duties as an employee; and

(b) that are losses or outgoings for accommodation or for food or drink, or are incidental to the travel.

The travel may be within or outside Australia.

Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses provides factors for consideration in determining when an allowance will qualify as a travel allowance. These factors include:

• the employee must sleep away from home;

• the allowance must cover the cost of accommodation (domestic travel only) or food or drink or expenses incidental to the travel;

• must cover specific journeys; and

• must be paid as an allowance.

As the per diem paid meets the requirements specified in TR 2004/6, the per diem is considered to be a travel allowance as defined in subsection 900-30(3) of the ITAA 1997.

Question 5

Summary

The provision of transportation would be a benefit as defined in section 136 of the FBTAA.

Detailed reasoning

For the provision of the transportation by the employer to be a fringe benefit as defined, a benefit must be provided by the employer (or associate) to an employee in respect of their employment.

A benefit is defined in section 136 of the FBTAA as including any right, privilege, service or facility that is provided under an arrangement for or in relation to the provision of work.

In this instance, the employer provides transportation for its employees when they are required to travel to Australia in the course of performing the duties of their employment.

As the employees are engaged by, and performing work for, the employer, the provision of transportation by the employer will be a benefit as defined by section 136 of the FBTAA.

Question 6

Summary

There will be no fringe benefits tax liability in respect of the provision of transportation by the employer as the taxable value of the benefit will be reduced to nil under the otherwise deductible rule in section 52 of the FBTAA.

Detailed reasoning

The provision of transportation is a fringe benefit which will be a residual fringe benefit as defined in section 45 of the FBTAA.

The transportation benefit provided will be an external residual fringe benefit as it is not provided to members of the public.

The taxable value of a residual fringe benefit provided by an employer, where it is purchased under an arm's length transaction, will be the amount paid or payable by the employer.

In these circumstances the employer pays for the transportation of its employees by third parties in arm's length transactions, so the taxable value of the benefits will be the amounts paid.

However, the taxable value of the benefit may be reduced to nil under the ODR in section 52 of the FBTAA.

For the ODR to apply, it is necessary to establish that the employee would have been entitled to a deduction under section 8-1 of the ITAA 1997 had they incurred the expenditure on their transportation.

As the employees are undertaking travel in the course of performing the duties of employment, if they had incurred the transportation costs themselves, it can be concluded that an income tax deduction would have been allowable under section 8-1 of the ITAA 1997.

Therefore, in these circumstances, there will be no fringe benefits tax liability in respect of the provision of transportation by the employer as the taxable value of the benefit will be reduced to nil under the ODR in section 52 of the FBTAA.

Question 7

Summary

The reimbursement of expenses that are incidental to travel by the employer to its employees would be a benefit as defined in section 136 of the FBTAA.

Detailed reasoning

For the reimbursements to be a fringe benefit as defined, a benefit must be provided by the employer (or an associate) to an employee in respect of their employment.

A benefit is defined in section 136 of the FBTAA as including any right, privilege, service or facility that is provided under an arrangement for or in relation to the provision of work.

In this instance, the employer reimburses their employees for expenses incidental to the travel to Australia that they are required to make in the course of performing the duties of the employment (for example, the cost of medical insurance relating to the travel, or the cost of hire cars to commute between the hotel and client site).

As the employees are engaged by, and performing work for, the employer, the reimbursement of expenses that are incidental to travel by the employer to its employees will be a benefit as defined by section 136 of the FBTAA.

Question 8

Summary

There will be no fringe benefits tax liability in respect of the reimbursement of expenses incidental to travel as the taxable value of the benefit will be reduced to nil under the otherwise deductible rule in section 24 of the FBTAA.

Detailed reasoning

The reimbursement of expenses is a fringe benefit which will be an eligible incidental travel expense payment benefit, which is an external expense payment fringe benefit pursuant to sections 20 and 23 of the FBTAA, as the benefit is not provided to members of the public as part of the employer's business.

In these circumstances the employer reimburses the employees for the expenses incurred which are incidental to their travel, so the taxable value of the benefits will be the amounts paid.

However, the taxable value of the benefit may be reduced to nil under the ODR in section 24 of the FBTAA.

For the ODR to apply, it is necessary to establish that the employee would have been entitled to a deduction under section 8-1 of the ITAA 1997 had they not been reimbursed on the expenditure.

As the employees are undertaking travel in the course of performing the duties of their employment, if they had incurred the incidental expenses themselves, without being reimbursed, it can be concluded that an income tax deduction would have been allowable under section 8-1 of the ITAA 1997.

Therefore, in these circumstances, there will be no fringe benefits tax liability in respect of the reimbursements as the taxable value of the benefit will be reduced to nil under the ODR in section 24 of the FBTAA.

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