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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1012991816109

Date of advice: 4 April 2016

Ruling

Subject: Living-away-from-home allowance

Question 1

Is the monthly food allowance paid to the employee a living-away-from-home allowance (LAFHA) under section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

If the food allowance paid to the employee is a living-away-from-home allowance fringe benefit, can the taxable value be reduced to nil by the exempt food component under subsection 31(2) of the FBTAA for the first 12 months that the duties of employment require the employee to live away from home?

Answer

Yes. Where the food allowance is paid in a period after the first twelve months the taxable value of the fringe benefit will be the amount of the fringe benefit under section 31B of the FBTAA.

Question 3

Will expense payment fringe benefits arise from the reimbursement of rent and utilities costs to the employee under section 20 of the FBTAA?

Answer

Yes

Question 4

If an expense payment fringe benefit arises from the reimbursement of the utilities cost, will it be an exempt benefit under section 21 of the FBTAA?

Answer

Only costs that cannot be dissected from the residential arrangement will be exempt under section 21 of the FBTAA and only for the first 12 months that the duties of employment require the employee to live away from home.

Question 5

If an expense payment fringe benefit arises from the reimbursement of rent will it be an exempt benefit under section 21 of the FBTAA for the first 12 months that the duties of employment require the employee to live away from home?

Answer

Yes.

This ruling applies for the following periods:

Year ended 31 March 2017 and 31 March 2018

The scheme commences on:

The date on which the employees commences renting premises at the new work location

Relevant facts and circumstances

The taxpayer requires a senior executive (the employee) to undertake an 18 month fixed term secondment to another company.

The employee will be required to work at the new work location of the other company.

The employee's home, where they live with their family, is located approximately X.X kilometres from their permanent work place.

The distance between the employee's family home and the new work location is approximately XX kilometres.

The driving commute time between the employee's family home and the new work location is approximately 1.5 to 2 hours during peak hours each way. A public transport alternative would be longer.

The employee works 10 hours per day Monday to Friday, and has to frequently attend meetings.

To ensure that the employee maintains productive working hours, the quality of their work and their ability to efficiently carry out their management responsibilities and quickly access the new work location, the employer will require the employee to reside within close proximity to the new location.

The employee's secondment employment contract includes a clause to the effect that the employee is required to reside within close proximity of the new work location.

It is not practicable for the employee's family to relocate to the new work location.

The employee will rent a property near the new work location during the term of secondment, while the employee's family members will remain in the family home.

The taxpayer proposes to pay the employee a monthly food allowance.

The taxpayer also proposes to reimburse the employee for rent and utility expenses for accommodation near the new work location.

The employee will make the declaration specified in section 31F of the FBTAA.

The employee will provide the employer with copies of actual rent and utilities expenses of the proposed rental accommodation.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 20

Fringe Benefits Tax Assessment Act 1986 section 21

Fringe Benefits Tax Assessment Act 1986 section 30

Fringe Benefits Tax Assessment Act 1986 section 31

Fringe Benefits Tax Assessment Act 1986 section 31B

Fringe Benefits Tax Assessment Act 1986 section 31C

Fringe Benefits Tax Assessment Act 1986 section 31D

Fringe Benefits Tax Assessment Act 1986 section 31F

Fringe Benefits Tax Assessment Act 1986 section 31H

Fringe Benefits Tax Assessment Act 1986 section 136

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Question 1

Is the monthly food allowance paid to the employee a LAFHA under section 30 of the FBTAA?

Section 30 of the FBTAA sets out the circumstance in which a payment to an employee will be a LAFHA benefit.

Subsection 30(1) of the FBTAA states:

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

1. Is the allowance 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?

Is the allowance in the nature of compensation for additional expenses incurred by the employee?

Yes. The allowance is being paid as compensation for additional food expenditures incurred by the employee while residing in the rental accommodation.

Is the employee living away from their normal place of residence?

'Normal residence' is defined in subsection 136(1) of the FBTAA as the employee's usual place of residence, when the employee's usual place of residence is in Australia.

The FBTAA does not provide a definition of the term 'usual place of residence'. However, subsection 136(1) of the FBTAA defines a 'place of residence' to mean:

In the absence of a legislative reference, it is relevant to refer to the ordinary meaning of the word 'usual'. The Macquarie Dictionary defines 'usual' to mean:

Miscellaneous Taxation Ruling MT 2030 Fringe benefit tax: living-away-from-home allowance benefits provides guidelines for determining an employee's usual place of residence.

Paragraph 14 of MT 2030 states:

Paragraph 20 of MT 2030 provides the following general rule:

These principles and the various cases that have considered usual place of abode or usual place of residence were discussed by the Administrative Appeals Tribunal in Compass Group (Vic) Pty Ltd (as trustee for White Roche & Associates Hybrid Trust) v FC of T [2008] AATA 845; 2008 ATC 10-051 (Compass). At paragraph 56, Deputy President S A Forgie said:

In considering these principals, it is accepted that during the secondment period the employee's family home will be the employee's usual place of residence.

Therefore, the employee will be living away from their usual place of residence during the period in which the employee is residing at the rental accommodation.

Do the duties of employment require the employee to live away from their usual place of residence?

The FBTAA does not provide a definition of the word 'require' in the context of subsection 30(1). Therefore, it is relevant to refer to the ordinary meaning of 'require'.

The Macquarie Dictionary defines 'require' to mean:

ATO Interpretative Decision ATO ID 2013/8 Fringe Benefits Tax Employee required to change usual place of residence in order to perform duties of employment discusses the meaning of the term 'required' in the context of subparagraph 58B(1)(b)(iii) of the FBTAA. ATO ID 2013/8 refers to the ordinary meaning and concludes:

The term 'required' has also been considered by the Administrative Appeals Tribunal (AAT) in Compass. In Compass the AAT states at paragraph 63 that:

The AAT in Compass concluded that the employee was not required to live away from home but chose to. In reaching that conclusion the AAT had regard to the fact that there was no evidence beyond the payment of the allowance itself that the employer required or even requested that the employee do so in order to perform their duties. The AAT decided that the payment itself took the matter no further. The Tribunal also took into account that the work itself did not seem to have demanded or required the employee to live away from home.

In considering ATO ID 2013/8 and Compass it is accepted that the facts in Compass are distinguishable and the duties of employment require the employee to live away from their usual place of residence.

2. Are the additional expenses non-deductible expenses?

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

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.

Additional expenses for the purposes of subsection 30(1) of the FBTAA include expenses for additional food and accommodation expenses.

Various court decisions have concluded that, generally, food and accommodation expenses incurred while living 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:

As set out in paragraph 3 of TD 96/7, paragraphs 37 to 43 MT 2030 outline factors which may indicate an employee is travelling in the course of performing their duties of their employment.

In summarising paragraph 35-40 of MT 2030, the factors that may indicate an employee is travelling in the course of performing their duties of their employment, include:

In applying the criteria to facts of the situation being considered:

In considering all the factors mentioned above, we have decided that the employee is not travelling in the course of undertaking their employment duties. As a result, the food for which the allowance is paid is not a deductible expense.

Conclusion

The requirements for the allowance to be a LAFHA are met.

Therefore, the food allowance the employer proposes to pay to the employee is a LAFHA in accordance with subsection 30(1) of the FBTAA.

Question 2

If the food allowance paid to the employee is a LAFHA, can the taxable value be reduced to nil by the exempt food component under subsection 31(2) of the FBTAA for the first 12 months that the duties of employment require the employee to live away from home?

Sections 31, 31A and 31B of the FBTAA provide three alternate methods that can be used to calculate the taxable value of a living-away-from-home allowance fringe benefit. The relevant method to use depends upon whether the requirements of subsection 31(1) or subsection 31A(1) of the FBTAA are met. Section 31A does not apply in this case as the employee is not a fly-in fly-out and drive-in drive-out employee (an employee satisfying the requirements in section 31E).

If the requirements of subsection 31(1) of the FBTAA are met, the taxable value under subsection 31(2) will be the amount of the fringe benefit reduced by any exempt accommodation component and any exempt food component.

However, if the requirements are not met the taxable value under section 31B will be the amount of the allowance.

Are the requirements of subsection 31(1) of the FBTAA met?

Section 31 of the FBTAA states:

Each requirement listed in subsection 31(1) will be discussed separately below:

Section 31C of the FBTAA

Section 31C of the FBTAA states:

For the reasons given earlier, the employee usually resides in Australia in the family home. The employee owns and will maintain the family home and it will continue to be available for their use and enjoyment. The employee will return to their family to stay with over weekends and intends to resume living in the family home after the secondment period.

Therefore, it is accepted that the employee satisfies section 31C of the FBTAA.

Section 31D of the FBTAA

The employee satisfies section 31D of the FBTAA if the fringe benefit relates only to all or part of the first 12 months that the duties of that employment require the employee to live away from the place in Australia where he or she usually resides.

Section 31D of the FBTAA effectively limits the use of the valuation method in subsection 31(2) of the FBTAA to a 12 month period.

Therefore, it is accepted that during the first 12 months of the secondment period, section 31D of the FBTAA is satisfied.

It is noted that the employer can pause the 12 month period under paragraph 31D (2)(a) of the FBTAA. If a LAFHA continues to be paid in this period the full amount of the fringe benefit is taxable: per subsection 31(4) of the FBTAA.

Section 31F of the FBTAA

You advised the Commissioner that the employee will make a declaration in accordance with section 31F of the FBTAA.

Calculation of the taxable value where section 31 applies

Subsection 31(2) of the FBTAA states:

Please be advised that the exempt accommodation component for the purpose of subsection 31(2) will not be discussed as it is not relevant.

Exempt food component

The term 'exempt food component' is defined in subsection 136(1) of the FBTAA to have the meaning given by section 31H.

Subsection 31H(1) of the FBTAA defines the exempt food component to be:

Subsection 31H(2) provides:

Work out the result of the following:

Food component - Applicable statutory food total

where:

applicable statutory food total means the total of the statutory food amounts for eligible family members for the period to which the fringe benefit relates, reduced (but not below zero) by any amount that:

(a) might reasonably be expected to be the total normal food or drink expenses for those eligible family members had they remained living in their normal residence during that period; and

(b) was taken into account in working out the food component.

Generally, the exempt food component of a LAFHA is so much of the allowance as is reasonable compensation for additional food costs the employee incurs because they are required to live away from their usual place of residence.

The meaning of terms 'food component' and 'statutory food amount' are contained in subsection 136(1) of the FBTAA, subsection 136(1) states:

The steps for calculating the exempt food component are outlined below:

Step

Action

1

Establish the food component

2

Subtract the applicable statutory food total from the food component.

That is:

Food component - applicable statutory food total

3

From the amount calculated at step 2, determine how much of that amount was incurred by the employee on food and drink.

4

The exempt food component is so much of the result of step 3 that can be substantiated if required.

Subsection 31(3) of the FBTAA

Subsection 31(3) of the FBTAA states that the exempt food component does not apply to the extent that the fringe benefit relates to a period during which the employee resumes living at his or her normal residence.

This means that if an employer pays an allowance for food or drink for any days that the employee returns home, that part of the allowance for those days is fully taxable.

Conclusion

In this case, the Commissioner accepts the calculation provided by the taxpayer. Therefore, the taxable value of the allowance will be nil.

Question 3

Will expense payment fringe benefits arise from the reimbursement of rent and utilities costs to the employee under section 20 of the FBTAA?

Section 20 of the FBTAA sets out circumstances in which an expense payment fringe benefits will arise.

Section 20 of the FBTAA states:

The taxpayer intends to reimburse the employee of for the actual rental expense and utilities expenses. As a result subsection 20(b) of the FBTAA would apply.

Question 4

If an expense payment fringe benefit arises from the reimbursement of the utilities cost, will it be an exempt benefit under section 21 of the FBTAA?

Section 21 of the FBTAA provides an exemption to accommodation expense payment benefits.

Section 21 of the FBTAA states:

In applying section 21 of the FBTAA, the expense payment benefit will be an exempt benefit if:

1. Is the recipient's expenditure in respect of accommodation for eligible family members?

The term 'in respect of accommodation' and the word 'accommodation' are not defined in the FBTAA.

ATO Interpretative Decision ATO ID 2001/803 Fringe benefit Tax: Living away from home and expenditure incurred in respect of accommodation briefly discusses the term 'in respect of accommodation'.

ATO ID 2001/803 concludes that payment of a mortgage on the house the employee purchases to live in is not an expense 'in respect of accommodation' for the purpose of section 21 of the FBTAA. This decision subjects a narrow interpretation of the phrase 'in respect of accommodation'.

It is also relevant to refer to ATO views in relation to other similar provisions of the FBTAA.

ATO Interpretative Decision 2004/276 Exempt benefit: remote area housing and residential fuel (ATO ID 2004/276) considered if the provision of free electricity constitutes part of the remote area housing benefit and thus is exempt under section 58ZC of the FBTAA.

ATO 2004/276 concluded that the remote area housing and electricity are two separate benefits.

ATO Interpretative Decision 2005/158 Exemption benefit: remote area housing and water (ATO ID 2005/158) considered if the provision of water as agreed under a residential tenancy agreement constitutes part of the remote area housing benefit. It concluded that in those circumstances the provision of water is part of the remote housing benefit.

In its reasons for decision, ATO ID 2005/158 considered the definition of 'housing right in subsection 136(1) of the FBTAA and concluded:

In applying the guidance, only the cost of utilities that cannot be dissected from the cost of the accommodation is considered to be expenditure in respect of accommodation.

Support for this conclusion was provided in the Tax Office response to agenda item 11 of the meeting of the FBT subcommittee of the National Tax Liaison meeting held on 8 November 2012. The following questions were asked:

The Tax Office response states:

In applying this guidance, utilities costs that are not part of the residential agreement will not be expenditures in respect of accommodation for the purpose of section 21 of the FBTAA.

2. The accommodation is not provided while the employee is undertaking travel

This issue has already been addressed in Question 1, and it is accepted that the employee is not undertaking travel.

3. The accommodation is provided solely because the duties of employment require the employee to live away from home

This issue has already been addressed in Question 1, and it is accepted that the duties of employment require the employee to live away from home.

4. Subsection (d) and (e) are satisfied

Sections 31C, 31D and 31F of the FBTAA have been discussed in Question 2. As discussed, the employee satisfies the requirement in section 31D for the first twelve months that the duties of employment require the employee to live away from home.

Conclusion

In conclusion, only utilities costs that cannot be dissected from the residential arrangement (i.e. the lease agreement) will be exempt under section 21 of the FBTAA.

Question 5

If an expense payment fringe benefit arises from the reimbursement of rent will it be an exempt benefit under section 21 of the FBTAA for the first 12 months that the duties of employment require the employee to live away from home?

Section 21 of the FBTAA has been discussed in Question 4.

In applying the reasoning in Question 4, it is accepted that the reimbursement of actual rent to the employee will be exempt under section 21 of the FBTAA for the first 12 months that the duties of employment require the employee to live away from home.


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