Edited version of your written advice

Authorisation Number: 1012864596227

Date of advice: 11 September 2015

Ruling

Subject: Fringe benefit tax: Living-away-from-home allowance benefit

Question 1

Is the allowance paid to the employee a Living -Away-From-Home allowance (LAFHA)?

Answer

No

Question 2

Is the allowance paid to the employees a travel allowance?

Answer

No

This ruling applies for the following periods:

Year ended 31 March 2016

The scheme commences on:

1 July 2015

Relevant facts and circumstances

An employee stationed at Office A commenced extended leave. As there were no other suitable employees available to undertake the duties an employee stationed in Office B was required to travel to Office A to undertake the duties while the employee was on leave.

In performing the duties the employee works in Office A office for a three week period.

At the end of the three week period, the employee returns to their normal residence in B for one week and performs the duties of his Office B position.

At the end of the week, the employee returns to A where they perform the duties of the Office A position for three weeks.

This pattern of work is repeated over a four month period.

Office B is located around 700 kilometres from Office A.

The employee is not accompanied by family members when he works in Office A.

The employee is paid an allowance described as called a 'travelling allowance' whilst working in Office A.

The employer arranges and pays for temporary accommodation in A for each of the 3-weekly periods. The accommodation may vary from one 3-weekly period to the next depending on the availability of suitable accommodation.

Reasons for decision

Is the allowance paid to the employee a living-away-from-home allowance (LAFHA)?

Section 30 of the Fringe Benefit Tax Assessment Act 1986 (FBTAA) sets out the circumstance in which an allowance paid to an employee will be a living-away-from-home allowance (LAFHA) benefit.

Subsection 30(1) of the FBTAA states:

Where:

(a)  at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and

(b)  it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for:

(i) additional expenses (not being deductible expenses) incurred by the employee during a period; or

(ii) additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject, during a period;

by reason that the duties of that employment require the employee to live away from his or her normal residence;

the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time.

In applying subsection 30(1) of the FBTAA an allowance will be LAFHA if:

1. The allowance is paid in compensation for addition expense incurred by an employee during a period by reason that the duties of employment require the employee to live away from his or her normal place of residence, and

2. The additional expenses are non-deductible expenses.

1. Is the allowance is paid in compensation for additional expenses that arise by reason that the duties of employment require the employee to live away from his or her normal residence?

The allowance is paid for food and incidental expenses incurred by the employee while they are working in Office A.

As Office A office is located about 700 kilometres from the employee's normal residence it is accepted that the employee is required to live away from their normal residence to perform the duties of employment.

Further, it is accepted that the employee will incur additional food and incidental costs while working in Office A.

Therefore, the allowance is paid in compensation for additional expense that arise by reason that the duties of employment require the employee to live away from his or her normal residence.

2. Are the additional expenses non-deductible expenses?

Subsection 136(1) of the FBTAA defines the term of 'deductible expense' as follows:

deductible expenses, in relation to an allowance paid to an employee, means expenses incurred by the employee in respect of which a deduction is allowable to the employee under section 8-1 of the Income Tax Assessment Act 1997 (ignoring Divisions 28, 32 and 900 of that Act).

Generally, section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for a loss or outgoing incurred in gaining or producing assessable income provided the loss or outgoing is not of capital nature, a domestic nature or incurred in relation to gaining or producing exempt income or non-assessable, non-exempt income.

Various court decisions have concluded that, generally, food and accommodation expenses incurred while away from home are essentially living expenses of a private or domestic nature and are therefore not deductible. However, exceptions to this general rule have been considered in several court cases and subsequent ATO public rulings.

These exceptions are summarised in paragraphs 3 and 4 of Taxation determination TD 96/7 Fringe benefits tax: is fringe benefits tax (FBT) payable on meals and accommodation provided to employees who work at remote construction sites, where the accommodation is not the usual place of residence of the employee?

Paragraphs 3 and 4 of TD 96/7 state:

3. Where meals are provided, and it is concluded that the employee is travelling in the course of their employment, the taxable value of the benefit will be reduced to nil under the 'otherwise deductible' rule. The criteria for determining whether an employee is travelling in the course of performing their job are set out in paragraphs 35-43 of Taxation Ruling MT 2030. These criteria include:

• the nature of the duties performed;

• whether the employee is accompanied by dependants; and

• the length of time spent away from home.

As a practical general rule, where the question of whether or not the employee is travelling cannot easily be determined and the period away does not exceed 21 days, the employee may be accepted as travelling.

4. Guidance as to whether the 'otherwise deductible' rule will apply to reduce to nil the taxable value of meals provided to employees who are not travelling for work purposes is found in paragraph 5 of Taxation Ruling TD 93/230. Relevant factors to take into account include whether the employee:

• is required to live close by work;

• has a permanent residence away from the work site;

• lives away from home for a relatively short period of time; and

• has any choice as to the location of the accommodation provided.

Again, the 21 day period mentioned in paragraph 3 above will be accepted as a relatively short period of time for the purpose of these tests.

As set out in paragraph 3 of TD 96/7, paragraphs 37 to 43 of Miscellaneous Taxation ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits outline factors which may indicate an employee is travelling in the course of performing their duties of their employment.

Paragraphs 37 to 43 of MT 2030 state:

37. Unlike living-away-from-home allowances, there is generally no change of employment location in relation to the payment of travelling allowances. While the expenses that they are intended to compensate for may be similar - meals and accommodation, etc., - the circumstances in which the allowances are paid are essentially different.

38. A living-away-from-home allowance is paid where the employee has moved and taken up temporary residence away from his or her usual place of residence so as to be able to carry out employment duties for a time at the new (but temporary) workplace. A travelling allowance, on the other hand, is paid because the employee is travelling in the course of performing his or her job. In the former case, there is a change of job location and an actual change of residence to a place at or near that location. In the latter, the employee does not change job locations but simply travels in order to carry out the requirements of the job.

39. Travelling allowances are often paid for comparatively short periods, exceptions being allowances paid where the employment is inherently itinerant in nature or where travelling is a regular incident of the occupation, e.g., commercial travellers, travelling entertainers, etc. Academics studying on sabbatical leave have also been held to be 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.

40. The nature of an allowance is not to be determined by reference solely to the period for which it is paid. As mentioned, a travelling allowance might be paid to a commercial traveller almost continuously throughout the year whereas another employee may receive a living-away-from-home allowance only for a month or so.

41. 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.

42. An employee travelling in the course of employment ordinarily would not be accompanied by his or her spouse and family. On the other hand, it is more common for the spouse and children of an employee who has temporarily changed job locations and is living away from the usual place of residence to have his or her family living at the new location.

43. That is not to say that an unaccompanied employee should always be treated as travelling and an accompanied one regarded as living away from home. While those factors might be indicative of the nature of the employee's absence, the tests for determining the purpose of an allowance are as previously explained. To illustrate the point, an employee who lives during the working week in the country town where his permanent job is located but who travels perhaps several hundred kilometres to live during weekends with his wife and children in the family home located in another town would be, during the week, living away from home. So, too, would a married public servant based in a capital city who is seconded for six months to carry out a special task interstate in circumstances where his family stays behind in the family home. It is not where the family is that determines the nature of the allowance but where the employee is in relation to the usual place of residence and whether, on the facts, the employee can be said to be travelling on the job or living away from home.

In summarising these paragraphs, the factors that may indicate an employee is travelling in the course of performing their duties of their employment, include:

(a) no change of job location;

(b) the allowance is paid because the employee is moves frequently from place to place;

(c) the allowance is paid for short periods;

(d) the employee is generally not accompanied by spouse or family; and

(e) the nature of the accommodation. Where the accommodation is obtained on a short term basis, this may indicate the employee is travelling;

Each of these factors is considered below:

(a) Is there a change of job location?

During the three week periods in which the employee is in Office A, the job location changes from Office B to Office A.

(b) Is the employee required to move frequently from place to place in the course of performing his job?

The employee is required to move between Office B and Office A on X occasions during the four month period.

(c) Is the allowance paid for short periods?

The allowance is paid for four periods of X days. Each of these periods is a relatively short period of time.

(d) Is the employee accompanied by spouse or family?

The employee is not accompanied by their spouse or family.

(e) What is the nature of the accommodation?

The accommodation provided by the employer is temporary accommodation.

Conclusion

Although there is a change in the job location, it is accepted that the employee is travelling due to:

• the relatively short periods of time in which the employee is working in Office A;

• the temporary nature of the accommodation;

• the constant moving between offices; and

• the fact that the employee is not accompanied by the employer.

As the employee is travelling, the food and incidentals for which the allowance is paid are deductible expenses. Therefore, the allowance will not be a living-away-from-home allowance.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).