Edited version of your written advice

Authorisation Number: 1051380167254

Date of advice: 31 May 2018

Ruling

Subject: Living away from home allowance and starting a separate 12 month period

Question 1

Can a new 12 month period be started for Employee 1, Employee 2 and Employee 3 in accordance with section 31D of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), where the employee moves temporarily to a new location?

Answer

No

Question 2

If an employee has previously lived temporarily at a new location, does section 31D of the FBTAA deny a new 12 month period commencing with respect to living away from home benefits at the new location?

Answer

Yes

This ruling applies for the following periods:

From 1 April 201x

The scheme commenced on:

1 April 201x

Relevant facts and circumstances

The Taxpayer is a company which tenders for projects Australia wide.

As part of their duties of employment, certain employees of the Taxpayer are required to move to various locations around Australia to take up positions of limited duration in order to complete projects. Employees may be required to live away from their usual places of residence for the duration of each project. There is an intention for each employee to return to their home location at the end of each project and then commence work on a different project either close to home, or after relocating elsewhere. On rare occasions, the employee may need to relocate from one project location away from home to a different location away from home for another project without returning home in between.

Although not common, it is possible that employees may be deployed to projects in locations near to where they have previously worked and lived temporarily on previous projects. In some cases, it may be many years elapsed since the employee lived and worked in that previous location.

The following scenarios were considered when addressing Question 1:

Employee 1: Was in receipt of a LAFHA at Location A. Returned to Location A several years later after living at both their usual place of residence, and living, working and in receipt of a LAFHA at Location B in the intervening period.

Employee 2: Was in receipt of a LAFHA at Location C. Returned to Location C several years later after living at their usual place of residence in the intervening period.

Employee 3: Was in receipt of a LAFHA at Location D. Returned to Location D several years later after living at their usual place of residence in the intervening period.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 31D

Fringe Benefits Tax Assessment Act 1986 Subparagraph 31D(2)(b)(i)

Fringe Benefits Tax Assessment Act 1986 Subparagraph 31D(2)(b)(ii)

Reasons for decision

Summary

A new 12 month period cannot commence for Employee 1, Employee 2 and Employee 3 in accordance with section 31D of the FBTAA, where the employee moves temporarily to a location where the employee has at any time previously lived and worked and received a Living Away from Home Allowance.

Detailed reasoning

All legislative references are to the FBTAA.

For a payment to an employee to be considered a LAFHA, there are three conditions that must be met:

1. It is an allowance an employer pays an employee in respect of the employment of that employee.

2. The duties of their employment require them to live away from their normal residence.

3. The whole or part of the allowance is in the nature of compensation for:

● non-deductible additional expenses an employee might be expected to incur, or

● non-deductible additional expenses an employee might be expected to incur and other disadvantages suffered, because the duties of an employee's job require them to live away from their normal residence.

Access to the tax concessions for living-away-from-home allowances and benefits is limited to a period of 12 months for an employee (other than employees working on a fly-in fly-out or drive-in drive-out basis) at a particular work location, and to cases where the employee:

● maintains a home in Australia at which they usually reside and is available for their immediate use and enjoyment during that period that their duties of employment require them to live away from home and

● can substantiate all expenses incurred on accommodation and

● can substantiate all expenses incurred on food or drink (if the food or drink expenses incurred are more than the Commissioner of Taxation’s reasonable amounts) and

● provides their employer with a declaration about living away from home and, where required, a declaration on substantiation.

Maintaining a home in Australia requires an employee’s usual place of residence must continue to be available for their use and enjoyment at all times (or their spouse or child who would normally reside with them at that place) while they are living away from home. That is, the employee must incur the ongoing cost of maintaining this residence (such as mortgage or rental payments and rates), and it cannot be rented out or sub-let while they are living away from home.

The focus of this ruling is the application of section 31D of the FBTAA, which limits payment of a LAFHA to a period of 12 months for an employee at a particular work location.

Section 31D of the FBTAA states:

1. The employee satisfies this section 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 when in Australia.

2. Each of the following paragraphs applies for the purposes of subsection (1):

(a) the employer may pause the 12-month period;

(b) start a separate 12-month period if:

(i) the employer later requires the employee to live at another location for

the purposes of that employment; and

(ii) it would be unreasonable to expect the employee to commute to that other

location from an earlier location for which the employer provided a benefit of the

same kind to the employee;

(c) other changes in the nature of that employment are irrelevant;

(d) treat as one employer any of the employee's earlier employers that is or has been an

associate of the current employer.

31D(2)(b)(i)

A separate 12 month period may commence if the employee’s work location changes, that is, the employee is required by their employer to move to another location to perform the duties of employment.

The expression ‘another location’ is not defined within the Act and it is without a general law definition. There is no legislative guidance which provides assistance to determine what constitutes ‘another location’ for the purposes of restarting the 12-month period.

It is the ATO view that ‘another location’ in subparagraph 31D(2)(b)(i) should be interpreted in relation to any ‘earlier locations’ where the employee was required to live.

Once a 12-month period has been exhausted for a particular location, it cannot be revived by a new 12-month period. Were this not the case it would allow for employees to alternate between locations while receiving concessionally taxed LAHFA benefits.

Therefore, the 12-month time limit is a maximum, lifetime limit for that employment location per employment.

31D(2)(b)(ii)

The second requirement for a separate 12 month period to commence is it must be unreasonable for the employee to commute to the new location from the earlier location for which a LAFHA was provided.

To start a 12-month period, subparagraph 31D(2)(b)(ii) requires a consideration of the proximity of the ‘earlier location’ for which the employer provided a LAFHA benefit to the ‘other location’ and whether is it ‘unreasonable to expect an employee to commute between these locations. The effect of this is to limit the availability of a new 12-month period and to prevent employees from receiving the benefit by living at another location that is essentially the same, such as different locations within the same city.

This is an objective test and it is necessary to consider the individual facts and circumstances of each case. This test is simple when the locations clearly show it would be unreasonable to commute between them, such as in example 1.3 of the Revised Explanatory Memorandum to the Tax Laws Amendment (2012 Measures No. 4) Bill 2012 (the Revised Explanatory Memorandum) being Sydney and Melbourne. That example does not reference the reasonableness test of subparagraph 31D(2)(b)(ii). However, difficulty may arise when the locations are relatively close to the other locations. In these circumstances, further information would be required to determine whether it is reasonable to expect an employee to commute between the locations.

Other issues

Time between LAFHA instances

Subparagraph 31D(2)(b)(i) does not impose a limit on the time that the employer can ‘later require’ the employee to live at another location.

Whether a separate 12-month period can start in a particular location will not be influenced by whether a long period of time has occurred between living and working away from home in a location.

Living at home between LAFHA instances

A separate 12-month period will not be ‘reset’ if an employee lives at the place where they usually reside between instances of LAFHA at a particular location.

If this was the case, then the inclusion of the clarifying aspects of subsection 31D(2) would, arguably, be essentially redundant, as an employee could simply return home between instances of LAFHA to restart the 12-month period, rather than utilise the ability to pause the 12 month period (paragraph 31D(2)(a)).

Change in employment duties

A change in the duties of the employment, such as working on a separate project with the same employer, cannot start a separate 12-month period. Paragraph 31D(2)(c) specifically provides that changes in the nature of the employment that are made within the same work location, other than the requirement to live away from home, are irrelevant in determining whether the employee satisfies the section.

Scenarios: Employees 1, 2 and 3

In all 3 scenarios the employees’ specialist skills and knowledge required them to work on a new project at a location where they had previously lived, worked and received a LAFHA. The period in between the assignments differed for each employee.

Given the ATO view is that the 12-month time limit is a maximum, lifetime limit for that employment location per employment, a new 12 month period cannot commence pursuant to section 31D of the FBTAA if an employee is required to work on a new project at a location where they have previously received a LAFHA.

Therefore, the Taxpayer will not be eligible to access the LAFH concessions for a new 12 month period when the employees commence work on a new project at a later time at a location where they have previously lived, worked and received a LAFHA.

Question 2

Summary

If an employee has previously lived temporarily at a new location, section 31D denies a new 12 month period commencing with respect to living away from home benefits at the new location.

Detailed reasoning

A separate 12 month period may commence if the employee’s work location changes, that is, the employee is required by their employer to move to another location to perform the duties of employment.

The ATO view is that the 12-month time limit is a maximum, lifetime limit for that employment location per employment.

What constitutes a ‘location’ is a matter of fact and circumstance. The requirements of subparagraph 31D(2)(b)(ii) deem it must be unreasonable for the employee to commute to the new location from the earlier location for which a LAFHA was provided.

Employees 1, 2 and 3 are all considered to be returning to the same work location, given all employees undertook a previous project at that location for which they received a LAFHA.

Given Employees 1, 2 and 3 have all previously lived temporarily at the new location, a new 12 months period cannot commence and the Taxpayer will not be eligible to access the LAFHA concessions for a new 12 month period.

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