Edited version of your written advice

Authorisation Number: 1051404902586

Date of advice: 2 August 2018

Ruling

Subject: Expense payments and travel allowances

Question 1

Can the taxable value of residual fringe benefits provided by the employer be reduced by the operation of the ‘otherwise deductible’ rule in section 52 the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes. As the employee would be entitled to a once only deduction for accommodation expenses incurred while travelling, the ‘otherwise deductible rule’ will operate to reduce the taxable value of the fringe benefit.

Question 2

Will the allowances paid to the employees for meals and incidental expenses be considered a living away from home allowance as described in section 30 of the FBTAA?

Answer

No. The allowances paid to the employee are considered to be travelling allowances which are not subject to the provisions of the FBTAA.

This ruling applies for the following period:

1 April 20XX to 31 March 20XX

Relevant facts and circumstances

Employer background

The employer is an Australian company that provides electrical contracting, engineering and maintenance services to industry. The majority of work undertaken by the employer is in the City AA area.

Due to challenging economic conditions in the industrial and manufacturing industries the employer tenders for project work in remote locations to maintain workloads for its employees.

The employer has been engaged by a client to provide electrical services at a site in remote State B. The project has a limited life with a work program of approximately 12 weeks but maybe extended if delays are encountered due to environmental factors.

Travel allowance

When engaging employees on remote projects that require the employee to stay away from home overnight, the employer provides the employee with accommodation and pays a travel allowance of $70 per night to cover the cost of meals and incidentals. The payment structure does not alter based on the length of the project.

Employee circumstance

The employee is an Australian resident who has been instructed to work on the mine project in remote State B for an expected period of 12 weeks commencing in July 20XX.

The employee will be working 11 hours per day on a 12 day on and 2 day off roster and returning to his ordinary place of residence at the end of each roster.

The employer has sourced and booked short term, shared holiday accommodation for its employees.

Family and friends are not permitted to stay with the employees whilst at this accommodation and personal effects will not be relocated from the employee’s ordinary place of residence.

The employee is not relocating or living away from home as supported by the following factors:

● The project duration of 12 weeks (limited life) is a relatively short period of time and the employee is required to stay at accommodation supplied by the employer near the mine site.

● The accommodation is short term and temporary, shared with four other employees, with basic furnishings and limited cooking and storage facilities. The employee will spend minimal amounts of time at the accommodation due to the long (11 hour) work shifts and 12 day on 2 day off roster. The employee will return home to his permanent residence at the end of each 12 day roster.

● Due to the nature of the shared accommodation the employee’s partner, family and friends cannot visit and family belongings will not be transferred to the new location.

Relevant legislative provisions

Income Tax Assessment Act 1997

Section 6-1

Section 8-1

Section 15-2

Subdivision 900-B

Section 900-20

Section 900-30

Section 900-50

Fringe Benefits Tax Assessment Act 1986

Division 12

Section 45

Section 51

Paragraph 51(a)

Section 52

Subsection 136(1)

Taxation Administration Act 1953

Schedule 1

Section 12-35

Reasons for decision

Question 1

Summary

The taxable value of the accommodation fringe benefit provided by the employer may be reduced by the “otherwise deductible rule”. As the employee is travelling in the course of his employment, he would be entitled to a once-only deduction for the cost of the accommodation.

Detailed reasons

A “fringe benefit” is defined in section 136(1) of the FBTAA as a benefit provided by the employer of an employee or by an associate of the employer, to the employee in respect of their employment.

As the employee is employed by the company to perform work and the provision of the accommodation by the company is in respect of the employee’s employment duties, there is a fringe benefit.

On the basis that the provision of the accommodation is a fringe benefit provided by the company to the employee, the benefit will be a residual fringe benefit as defined in section 45 of the FBTAA.

Section 45 of the FBTAA provides that a benefit is a residual benefit for the purposes of the FBTAA if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive).

In this instance the provision of accommodation will not be a housing benefit. A housing benefit is defined in section 25 of the FBTAA as the subsistence of a housing right during the year of tax.

‘Housing right’ is defined under subsection 136(1) of the FBTAA to mean a lease or licence granted to the person to occupy or use a unit of accommodation insofar as that lease or licence subsists at a time when the unit of accommodation is the person's usual place of residence.

As the unit of accommodation is not the employee's usual place of residence, the right to use the unit is not a housing benefit.

The residual fringe benefit will be an “external period residual fringe benefit” under section 51 of the FBTAA as the benefit is not of a kind that the company provides to members of the public and it is provided in relation to a period exceeding 1 day.

As the accommodation will be provided by the company under an arm’s length transaction, prima facie, the taxable value of the residual fringe benefit will be equal to the amount paid or payable by the company in respect of the benefit (paragraph 51(a) of the FBTAA).

However, the taxable value of the residual fringe benefit may be reduced where the “otherwise deductible rule” in subsection 52(1) of the FBTAA applies. This rule will apply where:

(a) The recipient of the benefit in relation to an employer in relation to a year of tax is an employee of the employer; and

(b) If the recipient of the benefit had incurred and paid unreimbursed expenditure, in respect of the provision of the benefit, a once-only deduction (referred to as “Gross Deduction” or “GD”) would have been allowable to the recipient under, inter alia, the Income Tax Assessment Act 1997 (ITAA 1997)); and

(ba)The amount calculated in accordance with the following formula exceeds nil:

GD – RD

“RD” is nil where there is no contribution by the recipient to the benefit (as is the case for the employee here); and

(c) Either of the below applies:

(i) The fringe benefit is an “exclusive employee residual benefit” as defined in section 136 because it is a benefit where, if the recipient had incurred expenditure in relation to the provision of the recipient’s benefit, that expenditure would have been exclusively incurred in gaining or producing the salary or wages of the recipient in respect of the employment to which the fringe benefit relates; or

(ii) The recipient gives the employer, before the declaration date, a declaration in a form approved by the Commissioner, in respect of the recipient’s benefit and

(d) Where the fringe benefit is an extended travel residual benefit (being a benefit in respect to travel outside Australia and involves the recipient being away from the recipient’s usual place of residence for a continuous period including more than 5 nights), the recipient gives to the employer, before the declaration date (being the date of lodgement of the FBT return for the relevant year) a travel diary in relation to the travel undertaken by the recipient to which the fringe benefit relates.

As to whether the employee would be able to claim a deduction for the cost of accommodation while they are undertaking travel on business for the company, paragraph 54 of Draft Taxation Ruling TR 2017/D6 states that accommodation expenses incurred by an employee in performing an employee’s work activities are deductible only where:

● The employee’s work activities require them to undertake the travel;

● The work requires the employee to sleep away from home overnight;

● The employee has a permanent home elsewhere; and

● The employee does not incur the expense in the course of relocating or living away from home.

Paragraph 72 of Draft Taxation Ruling TR 2017/D6 also states that whether an employee is living away from home depends on the facts of each case. Relevant factors are:

● The time spent working away from home;

● Whether the employee has a usual place of residence at a previous location;

● The nature of the accommodation; and

● Whether the employee is, or can be accompanied by family or visited by family or friends.

Furthermore, paragraph 55 of Draft Taxation Ruling TR 2017/D6 states that expenses must be apportioned to the extent that they are of a private nature or are not incurred in producing assessable income.

In applying the above factors to the facts of this case, the following conclusions may be made:

● The nature of the employee’s work and the scope of their duties require them to undertake the travel;

● From a practical point of view, the work requires the employee to sleep away from home overnight near their work location;

● The employee has a permanent home where he and his family reside;

● The facts indicate that the expense is not incurred the course of relocating or living away from home:

Based on these factors, the employee has been travelling while performing his work activities. Applying the above factors to the accommodation provided by the employer to the employee:

(a) The recipient of the benefit is an employee of the company.

(b) In respect of the benefit, if the employee had incurred and paid the unreimbursed expenditure, they would be able to claim a deduction under section 8-1 of the ITAA 1997 on the basis that the expense was necessarily incurred in producing their assessable income.

(c) The accommodation is an “exclusive employee residual benefit” because if the employee had incurred the accommodation expenditure, the expenditure would have been exclusively incurred in gaining or producing the salary or wage income in respect of the employment to which the fringe benefit relates.

(d) As subparagraph 52(1)(c)(i) of the FBTAA applies the employee is not required to provide a declaration in a form approved by the Commissioner in respect of the benefit received by the employee.

Accordingly, the taxable value of the residual fringe benefit will be reduced to nil by the operation of subsection 52(1) of the FBTAA.

Question 2

Summary

The payments made to the employee to cover the costs of food, drink or incidentals while travelling away from home are in the nature of a travel allowance and are outside the scope of the FBTAA.

Detailed reasons

Reimbursement v allowance

Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement explains how reimbursements and allowances are differentiated.

2. A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance.

3. A payment is a reimbursement when the recipient is compensated exactly (meaning precisely, as opposed to approximately), whether wholly or partly, for an expense already incurred although not necessarily disbursed. In general, the provider considers the expense to be its own and the recipient incurs the expenditure on behalf of the provider. A requirement that the recipient vouch expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. A requirement that the recipient refunds unexpended amounts to the employer adds further weight to that presumption.

4. The meaning of the word "reimburse" includes payments made in advance of expenditure as long as those payments possess the characteristics outlined in paragraph 3.

In Roads and Traffic Authority (NSW) v. Federal Commissioner of Taxation (1993) 43 FCR 223; (1993) 26 ATR 76; 93 ATC 4508, the RTA paid amounts to its employees in respect of daily travel costs to and from work and for travel costs in commencing annual leave from specific areas. Both types of payment were made pursuant to various industrial awards, were based on the cost of public transport and were paid whether or not such transport was used. The RTA did not require the payments to be accounted for.

Hill J took the view that because the payments bore little relation to the actual costs incurred and the employees were not required to account for their expenditure, they were allowances which fell within the definition of salary or wages and were thus outside the scope of the FBTAA.

Travel allowances

A travel allowance is defined in subsection 900-30(3) of the Income Tax Assessment Act 1997 (ITAA 1997) as:

A travel allowance is an allowance your employer pays or is to pay to you to cover losses or outgoings:

(a) that you incur for travel away from your ordinary residence that you undertake in the course of your duties as an employee; and

(b) that are losses or outgoings for accommodation or for food or drink, or are incidental to the travel.

The travel may be within or outside Australia.

A travel allowance is a payment to an employee to cover accommodation, food, drink or incidental expenses they incur when they travel away from their home overnight in the course of their duties.

Generally, allowances form part of a person’s assessable income – refer section 15-2 of the ITAA 1997.

Travel allowances are not required to be shown as assessable income in the employee’s tax return (and no deductions can be claimed) in certain circumstances where the allowance:

● Does not exceed the reasonable amount published by the Commissioner;

● Is not shown on the employee’s payment summary; and

● There is an expectation that the employee will spend all of the travel allowance on accommodation, food, drink or incidental expenses.

Where the amount of the expenditure is less than the allowance, both the allowance and the expenditure must be disclosed in the employee’s tax return.

Reasonable amounts

An employee is not required to obtain written evidence of claims for expenses covered by a domestic travel allowance or overseas travel allowance if the amount claimed does not exceed certain “reasonable amounts”. This is so whether or not the allowance is paid under an industrial instrument.

The Commissioner’s view on what constitutes “reasonable amounts” for travel allowance purposes are published annually in a Taxation Determination. For the current income year the “reasonable amounts” are set out in Taxation Determination TD 2018/11 Income Tax: what are the reasonable travel and overtime meal allowance expense amounts for 2018-19 income year?

Conclusion

As per the reasoning in Question 1, the employee is considered to be travelling in the course of his employment. The amounts paid to him to cover the costs of food, drink and incidentals constitute a travel allowance and are outside the scope of the FBTAA.

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