Edited version of your written advice

Authorisation Number: 1051220754839

Date of Advice: 3 May 0217

Ruling

Subject: Exempt Fringe Benefits

Question 1

Will your weekly rental reimbursement amount be an exempt benefit under section 21 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) for the first 12 months while your employee's duties require him to live away from his normal place of residence?

Answer

Yes.

This ruling applies for the following periods:

1 April 2014 to 31 March 2015

1 April 2015 to 31 March 2016

1 April 2016 to 31 March 2017

The scheme commenced on:

1 April 2014

Relevant facts and circumstances

Your employee is employed in a remote location on a three year fixed term employment contract. There is provision for a two year extension offered under various legislative frameworks.

Your employee's contract states that you will pay a certain percentage of rental accommodation expenses in line with current market rate and that the employee is required to pay the remaining percentage regardless of private or government housing rental agreements.

The employee moved from one regional town to another regional town in MMYYYY and rented a $X per week house at the new regional town in a private rental agreement from MMYYYY for a Y month fixed term lease followed by a periodic lease.

You reimbursed the employee $Z per week which is A% of the $X rental amount.

Your employee only moved to the new regional town in MMYYYY to carry out work responsibilities.

The employee intended to return back to the former regional town and live with the family in the family home at the completion of the contract.

If the employee did not work under this legislative requirement, then the employee would have continued to live in the former regional town in the family home.

A search of Google maps indicates the distance between the two regional towns is greater than 900 kilometres.

While the employee worked at the new regional town:

● The employee's spouse lived with the employee at the rented house.

● The employee stored personal effects at the house in the former regional town which was available for the immediate use and enjoyment at all times.

● The employee's child lived at the house in the former regional town rent free. The house was never rented out to anyone during this period.

● The employee's other child did not live at the house in the former regional town but lived at another location in that town.

The employee ceased the legislative requirements in MMYYYY and was immediately re-employed by you in the former regional town on a two year temporary basis (MMYYYY to MMYYYY).The employee and the family now live back in the former regional town since taking up the new senior position in MMYYYY.

The employee's spouse returned to the house at the former regional town approximately six weeks before your employee commenced in the new senior position.

The employee has provided a living away from home declaration in the form approved by the Commissioner before the declaration date.

Employee's family and house details

Employee purchased the house in the former regional town as the primary place of residence approximately twelve years earlier.

The spouse and children have lived in this house since the purchase date.

The employee has never rented the house out during this period.

Employee's work history prior to the new position

The employee was employed in a private company in the former regional town for a period of time.

Prior to purchasing the house in the former regional town, the employee's employment was based around this town with various employers.

The employee had a three year employment in another regional town during YYYY to YYYY.

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 136

Reasons for decision

An expense payment fringe benefit arises where an employee incurs an expense and the employer reimburses them or pays a third party for the expense. Section 20 of the FBTAA sets out circumstances in which an expense payment fringe benefit will arise. It states:

Where a person (in this section referred to as the “provider”):

(a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the “recipient”) to pay an amount to a third person in respect of expenditure incurred by the recipient; or

(b) reimburses another person (in this section also referred to as the “recipient”), in whole or in part, in respect of an amount of expenditure incurred by the recipient'

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit to the recipient.

As you reimburse the employee for A% of the rental expenses, subsection 20(b) of the FBTAA applies.

Section 21 of the FBTAA provides an exemption to accommodation expense payments where the following requirements are met:

Where:

(a) an expense payment benefit is provided in a year of tax to current employee of an employer in respect of his or her employment; and

(b) the recipients expenditure is in respect of accommodation for eligible family members; and

(c) the accommodation is not provided while the employee is undertaking travel in the course of performing the duties of that employment; and

(d) the accommodation is required solely because the duties of that employment require the employee to live away from his or her normal residence; and

(e) the employee satisfies:

(i) section 31C (about maintaining an Australia home) and 31D (about the first 12 months); or

(ii) section 31E (about fly-in fly-out and drive-in drive-out requirements); and

(f) the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out:

(i) if the employee satisfies section 31C and 31D - the matters in subparagraphs 31F(1)(a)(i) to (iii); or

(ii) if the employees satisfies section 31E - the matters in subparagraphs 31F(1)(b)(i) to (iii)

the benefit is exempt benefit in relation to the year of tax.

For our purposes, the reimbursement of A% of the accommodation may be exempt from FBT if it relates to expenses an employee incurs on accommodation where the accommodation is required solely because the employee is required to live away from their normal residence to perform employment duties.

Normal residence

To determine whether the employee is required to live away from his normal residence it is necessary to identify their normal residence.

The FBTAA defines normal residence as 'usual place of residence'. 'Usual place of residence' is undefined, however subsection 136(1) it defines a 'place of residence' to mean:

(a) a place at which the person resides; or

(b) a place at which the person has sleeping accommodation;

whether on a permanent or temporary basis and whether or not on a shared basis.

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

1. habitual or customary: his usual skill.

2. such as is commonly met with or observed in experience; ordinary: the usual January weather.

3. in common use; common: say the usual things.

noun

4. that which is usual or habitual.

phrase

5. as usual, as is (or was) usual; in the customary or ordinary manner: he will come as usual.

Guidelines for determining an employee's usual place of residence are provided by Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits (MT 2030).

Paragraphs 15 to 18 refer to various decisions of Taxation Boards of Review relating to the former 51A of the Income Tax Assessment Act 1936. In referring to these decisions paragraph 14 of MT 2030 states:

As the decisions illustrate, the question whether an employee is living away from his or her usual place of residence normally involves a choice between two places of residence, i.e., the place where the employee is living at the time or some other place. A person is regarded as living away from a usual place of residence if, but for having to change residence in order to work temporarily for his employer at another locality, the employee would have continued to live at the former place. It would be relevant in reaching that view that there is an intention or expectation of the employee returning to live at the former place of residence on cessation of work at the temporary job locality. This would be relevant even if the employee is living in temporary quarters close to a temporary job site.

Further discussion occurs at paragraphs 19 to 25. Paragraph 20 provides the following general rule:

Employees who move to a new locality to take up a position of limited duration with an intention to return to the old locality at the end of the appointment would generally be treated as living away from their usual place of residence. For example, a construction worker having to travel to a construction site to live and work would be in this category unless he had abandoned the former place of residence upon moving to the locality of the site. A case of the latter situation would be where the employee decided to permanently leave the former home, e.g., if a resident of Sydney, on obtaining a job for two years on a construction site in a remote part of Western Australia, decided to "sell up" in Sydney and move permanently to Western Australia to live.

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 (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:

55. There are several principles that can be gleaned from these cases. The first is that the fact that s 30 and, before it, s 51A, are concerned with what is described as a living-away-from-home allowance. That allowance is paid by an employer to an employee in respect of the employee's employment. It is a payment in the nature of compensation. The compensation is to meet additional expenses the employee incurs during a particular period and for other additional disadvantages he or she faces in that period but only if the expenses are incurred because he or she is required to live away from his or her usual place of residence in order to perform the duties of employment. As Mr Cotes alluded to in CaseB47, it necessarily assumes that the taxpayer has two places that could be described as his 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 his 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.

In considering the factors referred to by the AAT, the following factors indicate that the employee's normal place of residence is in the former regional town:

● Employee purchased the house in this former regional town as the primary place of residence approximately twelve years earlier.

● The spouse and children have lived in this house since the purchase date.

● The employee's child lived at the house in this former regional town rent free. The house was never rented out to anyone during this period.

● Prior to purchasing this house in the former regional town, the employee's employment was based around this town with various employers.

● The employee stored the personal effects at this house in the former regional town which was available for the immediate use and enjoyment at all times.

Therefore, during the period in which the employee resides in the new regional town, the employee will be living away from the normal residence.

Meaning of 'required'

To qualify for the exemption the accommodation must be required solely because the duties of employment require the employee to live away from his normal residence.

The FBTAA does not define 'require' in the context of subsection 21(c) of the FBTAA. Therefore, it is relevant to refer to the ordinary meaning of 'require'.

The Macquarie Dictionary [Multimedia], version 5.0.0,01/10/01, defines 'require' to mean:

1. to have need of; need: he requires medical care.

2. to call on authoritatively, order, or enjoin (a person, etc.) to do something: to require an agent to account for money spent.

3. to ask for authoritatively or imperatively; demand.

4. to impose need or occasion for; make necessary or indispensable: the work required infinite patience.

5. to call for or exact as obligatory: the law requires annual income tax returns.

6. to place under an obligation or necessity.

7. to wish to have: will you require tea at four o'clock?

8. to make demand; impose obligation or need: to do as the law requires.

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 (ATO ID 2013/8) discusses the meaning of the term 'required' in the context of subparagraph 58B(1)(b)(iii) of the FBTAA. In considering whether an employee who chose to change their usual place of residence to be closer to their new place of employment had been 'required' to change their usual place of residence ATO ID 2013/8 referred to the dictionary definition of 'require' and concluded:

Therefore, it is considered that the term 'required' as it is used in subparagraph 58B(1)(b)(iii) does not mean that the change of usual place of residence must be compulsory. Rather, the change may be one that is necessary in the circumstances in order for the employee to perform the duties of their employment.

Therefore, as the usual place of residence is in the former regional town and the employment location is in the new regional town, located over 900 kilometres away, the distance makes it necessary for the employee to live away from the normal residence. It is therefore accepted that the employee is required to live away from the normal residence in order to perform the duties of employment.

Further, the employee has satisfied the remaining requirements of section 21 of the FBTAA as follows:

● the new regional town's accommodation is not provided while undertaking business travel

● the employee maintained a home in the former regional town, and

● the employee provided a declaration in a form approved by the Commissioner before the declaration date.

It is therefore accepted that the reimbursement of actual rent to the employee will be exempt under section 21 of the FBTAA.

As the requirements of paragraph 21(b) of the FBTAA have been met, subparagraph 21(d)(i) limits the exemption to the first 12 months that the duties of employment require the employee to live away from home.

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