Edited version of your written advice

Authorisation Number: 1051176249889

Date of advice: 4 April 2017

Ruling

Subject: Usual Place of Residence

Question 1

Will the reimbursement of qualifying incidental costs to the sale and/or purchase of a house by the employee of the taxpayer, be exempt from Fringe Benefits Tax for the purposes of Section 58C of the FBTAA 1986?

Answer

No, the reimbursement will not be exempt from Fringe Benefits Tax, as the employee was not required to change their usual place of residence.

This ruling applies for the following periods:

FBT Year ended 31 March 201X

The scheme commences on:

April 201X

Relevant facts and circumstances

The employee, together with their spouse, owned a dwelling in the Country A hereinafter referred to as 'the Country A property', from the period of 20XX to 201X.

The employee considers that the Country A property was their 'usual place of residence' up until late 201X, when the property was sold.

The employee, along with their family, lived together in the Country A. A property from 20XX to 200X.

From 200X to 201X, the employee worked for their previous employer on appointment in Country B.

During the appointments in Country B, the employee and their family always resided in the same dwelling.

In early-mid of 201X, on agreement with their previous employer, the employee agreed to commence a X year appointment in Australia, and thereafter acquired a working Visa.

In 201X the employee obtained an Australian Permanent Resident's Visa.

In 201X, the employee's role with the previous employer was terminated.

In 201X, it was the employee's intention that after late 201X, themselves and their family would occupy the Country A property as their 'usual place of residence'.

Throughout their stay in Australia, the employee and their family occupied dwellings in XXX, for which the employer would pay the rent.

In mid-late 201X, the employee commenced employment with the new employer (the taxpayer), located in XXX. The employment role with the taxpayer was an ongoing role which would require the employee to reside in XXX.

In mid-late 201X, the employee began taking steps to move certain assets and interests from the Country A into Australia.

In 201X, the employee sold the Country A property to finance the purchase of a new dwelling to be used as a family home in XXX.

Other Relevant Facts

From 200X to 201X, the Country A property was made available for rent and was tenanted for approximately X0% of their time;

Neither the employee nor their family have resided in the Country A property since 200X;

Throughout 200X to 201X, the employee and their family have always resided together in the same dwelling.

During the period from 200X to the present day, the employee, together with their family travelled to the Country A on holidays on several occasions, to visit family and friends;

During the period from 200X to the present day, the employee was at various times required to travel whilst in the employ of the former employer, and on several occasions whilst traveling in XXX, the employee would visit family and friends in Country A;

Both the employee and their spouse have parents still living in the Country A. The employee and their spouse also continue to have other social and familial ties to Country A;

On commencing employment with the taxpayer, the taxpayer required the employee to be located in XXX to take up the position of XXX.

The employment role with the taxpayer required the employee to remain in the XXX area, as they were to be based out of the head office in XXX.

The employee had initially taken a short term lease on a XXX property. When they made the decision to permanently relocate to Australia based on their employment with the taxpayer, they made a decision to purchase a property in the XXX area and to sell the Country A property, and put the proceeds of sale from the Country A property towards a family home in XXX.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986: Section 58C.

Fringe Benefits Tax Assessment Act 1986: Sub-section 136(1)

Reasons for decision

Section 58C of the FBTAA 1986 provides an exemption from liability to FBT on expenditure incurred by an employer to assist an employee to relocate, as regards the incidental costs associated with selling a property or dwelling to finance the purchase of a new dwelling.

The Explanatory Memorandum (EM) to the Taxation Laws Amendment (Fringe Benefits and Substantiation) Bill 1987, at Part B - Notes to [clause] section 58C explains that the exemption will apply to:

“an employee who changes their or her usual place of residence in the course of employment or in order to commence employment”

Sub-sections 58C(1), (2) and (3) of the FBTAA 1986 set out the preconditions which must be satisfied in order for the exemptions to apply. Each of these sub-sections relevantly states:

58C(1)  [Pre-condition for application of exemption]

Where:

(a) during a particular period (in ttheir subsection called the ``former home holding period''), an employee of an employer, or an associate of an employee of an employer, holds:

(i) a prescribed interest in land on which:

(A) there is a building constituting or containing a dwelling;

(B) the employee or associate proposes to construct, or complete the construction of, a building constituting or containing a dwelling;

(ii) a prescribed interest in a stratum unit in relation to a dwelling; or

(iii) a proprietary right in respect of a dwelling, being a flat or home unit;

(b) the employee or associate sells, or proposes to sell, the interest or right solely because the employee is required to change their or her usual place of residence in order to perform the duties of their or her employment;

(c) the employer first notifies the employee at a time (in ttheir subsection called the ``notice time'') during the former home holding period that the employee is required to perform the duties of that employment at the employee's new place of employment; and

(d) at the notice time, the employee occupied, or proposed to occupy, the dwelling, or proposed to occupy the proposed dwelling, as their or her usual place of residence;

the following subsections have effect.

58C(2)  [Sale of property]

Where:

(a) either of the following benefits is provided in respect of that employment of the employee in, or in respect of, a year of tax:

(i) an expense payment benefit where the recipients expenditure is incidental to the sale of that interest or right;

(ii) a residual benefit where the recipients benefit is incidental to the sale of that interest or right;

(aa) the employee or associate entered into a contract for the sale of the interest or right within 2 years after the day (the new employment day) on which the employee commenced to perform the duties of that employment at the employee's new place of employment;

58C(3)  [Acquisition of property]  

Where:

(a) at a particular time, the employee or an associate of the employee acquires:

(i) a prescribed interest in land on which:

(A) there is a building constituting or containing another dwelling;

(B) the employee or associate proposes to construct, or complete the construction of, a building constituting or containing another dwelling;

(ii) a prescribed interest in a stratum unit in relation to another dwelling; or

(iii) a proprietary right in respect of another dwelling, being a flat or home unit;

(b) the employee or associate acquires the interest or right solely because the employee is required to change their or her usual place of residence in order to perform the duties of that employment at the employee's new place of employment;

(c) the employee or associate entered into a contract for the acquisition of the interest or right on a day (the contract day) within 4 years after the new employment day;

(d) at the notice time, the employee occupied, or proposed to occupy, the dwelling, or proposed to occupy the proposed dwelling, as their or her usual place of residence;

In order to satisfy the conditions for the exemption under section 58C to apply it must first be determined where the employee's usual place of residence was located at the relevant time, so that consideration can be given to whether or not the employee was 'required' to change their usual place of residence.

In the present case, the new employment day fell in mid-late 201X, and the usual place of residence will either be:

● The Country A property, as contended by the applicant; or

● The XXX property, being the property at which the employee resided in mid-late 201X.

Relevant Law: Usual Place of Residence

Where a person's 'usual place of residence' is located is a matter of fact and degree. Whilst "Place of residence" is defined in subsection 136(1) of the FBTAA 1986, there is no legislative definition for 'Usual Place of Residence'. The meaning of 'usual place of residence' has been considered in a number of cases, and the ATO has also published Miscellaneous Taxation Ruling MT 2030: Living-away-from-home allowance benefits, which provides guidelines on the operation of the living-away-from-home provisions of the FBTAA and which also provides guidance as to what constitutes a person's 'usual place of residence' which is discussed at paragraphs 11 to 25 of MT 2030.

Notably, it is relevant to consider the nature of the employee's work arrangements, which in the present case was for a significant period undertaken as a Country A national, working as an expatriate in Country B and subsequently (from 2011) in Australia. Paragraph 22 of MT 2030 relevantly states:

22. Examples of employees on appointments of finite duration who will generally be living away from their usual place of residence are foreign nationals employed in Australia on a temporary basis and Australian residents (e.g., export consultants, diplomats, immigration officials, etc.) stationed in a foreign country for a time. Provided the appointment is for a limited period and the employee can be expected in the normal course to return to the same city or district of the home country to live, the employee may be treated as living away from their or her usual place of residence.

However, there is subject to paragraph 21 of MT 2030 which states:

Some employees may be unable to establish that they are living away from their usual place of residence because the transitory nature of their lifestyle means that their usual place of residence is wherever they happen to sleep at night. Employees who follow the job, say, from construction site to construction site and have no permanent place of residence would fit into ttheir particular category.

The meaning of the term usual place of residence has further been considered by the Administrative Appeals Tribunal in a number of cases including Case U110 87 ATC 663. Case U110 87 ATC 663 concerned an employee who accepted their employer's request to move temporarily from Adelaide to Sydney for six to nine months to oversee one particular problem project. Although the employee owned a home in Adelaide and considered the move to be temporary as he intended to return to Adelaide, the Tribunal decided that the Adelaide house was not the usual place of abode. Senior Member BJ McMahon at 666 stated:

A place of abode is more than a place one merely owns. It is a place where one lives. Since 1576, the Shorter Oxford English Dictionary says, abode has meant habitual residence. In that sense, the word "usual" in the statutory phrase is probably unnecessary. After the applicant left the Adelaide house, it ceased to be either their usual or any other adjectival place of abode.

The tribunal distinguished the decisions of the Boards of Review in Case C55 71 ATC 242 and Case R99 84 ATC 650 on the basis that in those cases the taxpayers usually lived and slept in the places of abode at regular intervals. In Case C55 the employee's family continued to live in the main place of abode which the employee returned to every second weekend, while in Case R99 the employee returned to their parent's home where he had left most of their belongings each weekend. At 667 Senior Member BJ McMahon stated:

To my mind the supposed temporary nature of the move has no relevance in determining the issue. Ties with friends have nothing to do with ties to a former place of abode. He does not appear to have had any ties to ttheir nature save those of a landlord and later of an employ property owner. These would not be sufficient to convert the premises to their usual place of abode even if, as I do not believe, they could be regarded as their unusual or casual place of abode. Their heart may well have been in Adelaide but at all material times their home was in Sydney.

The fact that some employees have rented out their premises is not of itself sufficient to find that they are living away from their usual place of residence. Case Y40 91 ATC 393 and Case Y51 91 ATC 453 involved employees who were temporarily transferred by their employer from Perth to Karratha. Both employees rented out their Perth homes.

In Case Y51 Deputy President PW Johnston stated at ATC 456:

… even though the applicant, notwithstanding that he had left their home at [Perth], continued to regard it as their normal home (in the sense of the place to which he always returned after undertaking employment/assignments elsewhere), the simple fact of the matter is, viewed objectively, during the tax year in question he was actually residing at the assignment location in Karratha. That was where for everyday purposes he lived and where he maintained their home for the duration of the assignment period. That was where their wife and children resided and from where they conducted their day to day activities including attending school.

In discussing the concept of “usual place of abode” as it relates to living away from home allowances in the judgment of P.M. Roach in Case R99 84 ATC 650 at ATC 657, it was noted that:

10. In the case of a married man with a family who is temporarily absent from the family home, albeit for a prolonged period, it is relatively easy to conclude that their "usual" place of abode is the family home so long as it is their intention to return there. The question is more difficult to answer in relation to many young men and women who are unmarried.

In Case X41 90 ATC 347; (1990) 21 ATR 3337, the employee lived in several different locations from the end of 1977 until 1989. With the exception of the period from January 1985 to February 1986 each of these locations were outside the Perth metropolitan area. The employee's wife accompanied him to each location. They returned to Perth for their holidays to see their children and members of their family and when in Perth generally stayed with members of their family. In 1988 the employee bought a home unit in Perth but did not live in it.

In considering whether Perth was the employee's usual place of residence, Deputy President G. L. McDonald stated at 351:

There is a distinction to be drawn between a person's "point of origin" as identified in their letter of assignment and a place where a person has their "usual place of residence". Probably Perth may be the place to which the applicant habitually returns for their holidays and for purposes of seeing their children, relations and friends. That, however, does not necessarily make Perth their "usual place or residence". Nor does the fact that he regards Perth as their "usual place of residence" make it so. That also must be judged objectively in accordance with the well-known principles set out by Lord Campbell CJ in R v Hammond (1852) 17 QB 772 at 781 where Their Lordship said:

"A man's residence where he lives with their family and sleeps at night is their place of abode in the full sense of that expression."…

He no doubt can be considered to be resident in Perth for the period January 1985 to February 1986. Outside the period January 1985 to February 1986 the applicant did not maintain any particular connection with Perth other than he left some furniture which was distributed to those of their children who lived in Perth. The furniture has remained with them ever since. The fact that he remained in Perth from January 1985 to February 1986 does not qualify him to be considered as a resident of Perth for the entire period. Rather it seems to me on the facts of ttheir case that the applicant's usual place of residence is equated to where he works at any particular time rather than to any fixed location.

The concept of “usual place of abode” and “usual place of residence” were discussed (in respect of living away from home allowances) by the AAT in Compass Group (Vic) Pty Ltd (as trustee for White Roche and Associates Hybrid Trust) v FC of T [2008] AATA 845; 2008 ATC 10-051. At paragraphs 55 and 56 Deputy President S A Forgie said:

…As Mr Cotes alluded to in Case B47, it necessarily assumes that the taxpayer has two places that could be described as their or her place of residence before one or the other needs to be identified as the "usual place of residence".

56. Putting to one side the case of Case 50, all cases looked to the taxpayer's place of residence before he or she acquired another place of residence. Each looked to the taxpayer's continuing connection with the first place of residence including matters such as whether their or her family continued to live there, the frequency of the taxpayer's visits there and whether or not that was a place to which the taxpayer could return at will if he or she so wished. Also relevant was the nature of the employment and whether the move to another place was a temporary or permanent move.

These cases illustrate that it is not just whether the employee maintains a house in an area to which the employee intends to return after working in another area that determines if the employee is living away from their 'usual place of residence'. There are a number of factors that may need to be considered including:

● An employee's place of residence is not only the place where the employee dwells for a considerable amount of time but includes the place where the employee habitually sleeps even if only on a temporary basis. However, no one factor will determine whether a particular place of residence is an employee's usual place of residence.

● An employee's usual place of residence is normally found near to the employee's fixed or permanent employment base;

● The terms of the employee's employment contract or award may indicate whether the employee's move to a new place of residence is merely temporary or of a more lasting nature i.e. a move to take up a promotion would indicate that the employee's usual place of residence would be where the employee carries on the new duties;

● The nature of the employee's employment or industry may also be relevant as some employees are required to travel,

● The longer the employee is required to work at a place, the more indicative it is that the move is not temporary in nature;

● While it is not necessary for an employee to own or have available a residence, the fact that the employee has, immediate family, assets, or other social, business, or contractual ties at or near a place of residence would strengthen a claim that the place is the employee's usual place of residence;

● Whether or not the employee has another residence to which they intend to return;

● If the employee has another residence to which they may return, consideration ought to be given to how the employee made use of that property, and whether or not the employee returned to the other residence whilst employed at the new location;

● If personal belongings are kept at the former residence or at the new accommodation, there may also be indicative of where the employee usually resides; and,

● Where the employee's family, particularly where the immediate family, spouse, children and other dependents reside is given particular significance.

Application of the law: Usual Place of Residence

On review of all the facts outlined in the ruling, it is considered that the quality and continuity of the employee's connection to the Country A property was not that of a 'usual place of residence'.

An employee's usual place of residence is normally found at or near to the employee's fixed or permanent employment base. The employee resided in several dwellings outside of the Country A, because they accepted appointments from their former employer to work outside of the Country A. In order to fulfil their obligations in these circumstances, the employee took up residence outside of the Country A, in close proximity to their place of work, at different locations in Country B, and then subsequently in Australia.

In 201X the employee and their family resided in a rental property in XXX, which was leased by the former employer until mid 201X, and thereafter by the employee until ealry of 201X.

At the relevant time in mid-late 201X, the employee commenced their new job with the applicant in XXX, whilst residing in the rental property in XXX. Based on the facts provided in the application, on the new employment date in 201X the employee's usual place of residence was the XXX rental property.

Was the change in the employee's usual place of residence 'required'?

The pre-conditions under sub-paragraphs 58C(1)(b) and 58C(3)(b) provide that the employee (or associate) must sell or acquire, or propose to sell or acquire, the relevant interest or right solely because the employee is 'required' to change their or her usual place of residence in order to perform the employment duties. Where an employee changes their usual place of residence to perform employment duties even though the employee is not required to do so by their employer, the employee may still be regarded as being “required” to change their usual residence. That is to say, the impetus requiring the employee to change their usual place of residence need not be the employer. It is sufficient if the change in usual residence is a practical necessity for the employee to effectively perform their employment duties consistent with the view expressed in Interpretive Decision ID 2013/8. ATOID 2013/8 relevantly states:

In the Administrative Appeals Tribunal case of Re Compass Group (Vic) Pty Ltd (as trustee for White Roche and Associates Hybrid Trust) v. FC of T [ 2008] AATA 845; 2008 ATC 10-051; (2008) 71 ATR 720 (Compass), the Tribunal examined the meaning of the word 'required' in the context of living-away-from-home allowance benefits under former subsection 30(1).

In Compass an employee temporarily accepted a more senior position from their employer. The position required him to work an additional five and a half hours each week. The employee's usual place of residence was 60 kilometres from their place of employment. As a result of their extended working hours, the employee rented premises closer to their place of employment and stayed there during the week. Their employer did not require him to do so. The employee intended to return to their home when the extended working arrangements came to an end. The employee was paid a weekly allowance by their employer for the additional costs he incurred in renting the property.

The Tribunal considered whether the employee was required to live away from their usual place of residence in order to perform the duties of their employment and, therefore, whether the allowance was a living-away-from-home allowance within the meaning in former subsection 30(1).

The Tribunal said in Compass:

  63. ...it would seem that the agent requiring the employee to live away from their or her usual place of residence must be the employer, the inherent nature of the employment or a mixture of the two. It would seem that regard must be had to both in order to answer whether the employee is so required...

  65. The word 'require' does not contemplate choice...

  70. ...I come to the conclusion that a reasonable person would conclude that he was not required to rent premises...but chose to...there is no evidence that suggests that their employer required or even requested that he do so in order that he could perform their duties...The work itself does not seem to have demanded or required it...the hours were not so extended and the commuting distance...not so great that it could be thought that the work itself required it so that he could perform the duties of their employment.

On consideration of all the facts outlined in the ruling, it is considered that the employee's change in residence was a choice made by the employee, and was not undertaken because the employee was required to change their usual place of residence.

Accordingly, the reimbursement of incidental costs to the sale of the Country A property will not be exempt from Fringe Benefits Tax for the purpose of sub-section 58C(2) of the FBTAA 1986.

Further, the reimbursement of incidental costs related to the purchase of the XXX family home by the employee, will not be exempt from Fringe Benefits Tax for the purpose of sub-section 58C(3) of the FBTAA 1986?

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