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Edited version of your written advice

Authorisation Number: 1051476013210

Date of advice: 31 January 2019

Ruling

Subject: Income tax and fringe benefits tax - the provision of accommodation and meals provided to employees

Question 1

Is the taxable value of accommodation provided to employees at the deployment location during the period of deployment reduced to nil under the “otherwise deductible” rule within section 52 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

If the answer to Question 1 is yes, is the taxable value of board fringe benefits provided to employees at the deployment location during the period of deployment reduced to nil under the “otherwise deductible” rule within section 37 of the FBTAA?

Answer

Yes.

Question 3

If the answer to Question 1 is no, is the provision of the accommodation to the employees at the deployment location during the period of deployment an exempt benefit under subsection 47(5) of the FBTAA?

Answer

Not applicable.

This ruling applies for the following periods:

Year ending 31 March 2018 and subsequent FBT years

The scheme commences on:

1 April 2017

Relevant facts and circumstances

Ongoing employees

Non-ongoing employees

Deployment location

Work arrangements

Working Hours

Private Time

Accommodation conditions

Food and Drink

Relevant legislative provisions

Income Tax Assessment Act 1997

Fringe Benefits Tax Assessment Act 1986

subsection 136(1)

Reasons for decision

Question 1

Is the taxable value of accommodation provided to employees at the deployment location during the period of deployment reduced to nil under the “otherwise deductible” rule within section 52 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

The ‘otherwise deductible’ rule applies to reduce the taxable value of the accommodation provided to employees in the remote and isolated location during the deployment to nil.

The employees have more than one place of work and are required, by the nature of their duties of employment, to travel from one workplace to the other. The particular and unique circumstances of this case support the conclusion that the accommodation expenses would be incurred in the course of earning the employees’ assessable income if the employees’ had incurred the expenses.

Detailed reasoning

Fringe benefits tax

Under subsection 136(1) of the FBTAA, a ‘fringe benefit’ is defined as a benefit provided to an employee (or an associate of an employee) by their employer (or an associate of an employer) in respect of their employment.

Both ongoing and non-going staff are, employees for the purposes of the FBTAA, being engaged under employment contracts.

The employer provides accommodation to employees while they are deployed.

In determining if the employer has a liability to pay FBT on the provision of such accommodation, it is necessary to determine the type of benefit being provided.

Accommodation provided for the employee is not a housing benefit as defined in section 25 of the FBTAA. A housing benefit comprises of the provision of a housing right to the recipient.

A “housing right” is defined in subsection 136(1) of the FBTAA as 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.

Even though the accommodation provided may satisfy the meaning of unit of accommodation in subsection 136(1) of the FBTAA, accommodation at the deployment location is not the usual place of residence of the employee. Employees have a place of residence they intend to return to at the end of the deployment. For these reasons, accommodation provided to the employees does not constitute a housing right.

If contrary to assumptions made an employee does not have a usual place of residence elsewhere (i.e. having a transient lifestyle or engaging in itinerant work), this requirement may be satisfied. This is because such employees are considered to relocate to each location they move to (i.e. it becomes their usual place of residence).

On the assumption that employees have a usual place of residence elsewhere, it needs to be considered whether the accommodation provided constitutes a residual benefit. Section 45 of the FBTAA provides that a residual benefit is one that does not fall within one of the prescribed categories of fringe benefit. ‘Benefit’ is defined very broadly in subsection 136(1) of the FBTAA to include any right, privilege, service or facility provided in respect of employment. Accommodation provided to employees is in respect of the employment of these individuals and would fall within this category of benefit.

The taxable value of a fringe benefit is determined under the FBTAA in accordance with the type of benefit provided.

Section 52 of the FBTAA provides that the taxable value of a residual fringe benefit may be reduced where the ‘otherwise deductible’ rule applies.

Paragraph 112 of Taxation Ruling TR 2001/2 Fringe benefits tax: the operation of the new fringe benefits tax gross-up formula which applied from 1 April 2000 states:

Deductibility of the accommodation to an employee

Paragraph 8-1(a) of the Income Tax Assessment Act 1997 (ITAA 1997) provides an expense is deductible to the extent it is incurred in gaining or producing an employee’s assessable income.

An accommodation expense incurred by an employee is only deductible to the extent that it is:

It is a question of fact whether an expense for accommodation is incurred in gaining or producing assessable income or is of a private or domestic nature.

An accommodation expense is not deductible to the extent that it is incurred in order to enable the employee’s income-producing activity to start or after it ends.

Accommodation expenses incurred because an employee has chosen to live at a distance from their main work place are also not incurred in the course of the employee’s income-producing activity and are of a private or domestic nature.

The same conclusion applies to accommodation expenses incurred because an employee is relocating in order to be closer to their main workplace.

On the other hand, accommodation expenses may be deductible where they are incurred because an employee has more than one place of work, or is required to attend a workplace for relatively short periods of time, provided their stay away is explicable by the nature of the work.

In the present case, the employees have workplaces in one of several cities within Australia, as well as in the deployment location.

Furthermore, the facts indicate that when employees travel to and stay at deployment location:

Other special circumstances of this case, such as the environmental factors and employment conditions, support this conclusion.

These facts indicate that the employees are acting in the course of their employment throughout the duration of each deployment, including during intervals or interludes in which they occupy accommodation. If the employees had incurred expenses on accommodation these would have been deductible under section 8-1 of the ITAA 1997.

The ‘otherwise deductible’ rule under section 52 of the FBTAA will therefore apply to reduce the taxable value of the residual fringe benefit to nil.

Question 2

If the answer to Question 1 is yes, is the taxable value of board fringe benefits provided to employees at the deployment location during the period of deployment reduced to nil under the “otherwise deductible” rule within section 37 of the FBTAA?

Summary

The ‘otherwise deductible’ rule applies to reduce the taxable value of the board fringe benefits provided to employees in the remote or isolated location during the period of deployment to nil.

Detailed reasoning

Employees required to travel for official work purposes, will have their meals met by the employer.

In accordance with section 35 of the FBTAA, the provision of meals by the employer to their employees constitutes a board fringe benefit if what is provided constitutes a board meal.

Subsection 136(1) of the FBTAA specifies what requirements need to be met for a board meal to be provided:

Subsection 136(1) of the FBTAA includes, in the definition of ‘meal entitlement day’, an arrangement in respect of employment in which the recipient was entitled to be provided with no fewer than two meals per day.

As the employer provides all meals each day to employees, in the dining facility, it is accepted that meals are provided on a ‘meal entitlement day’.

Subsection 136(1) of the FBTAA includes in the definition of ‘eligible premises’ the premises of the employer. As all meals are cooked or otherwise prepared on premises of the employer, it is accepted that this requirement is also met.

As the facility in which meals are cooked or otherwise prepared is not principally used for a particular employee, where meals are not provided at a party, reception or other function, given the requirements for ‘meal entitlement day’ and ‘eligible premises’ are met, the provision of such meals constitutes a board fringe benefit.

Section 37 of the FBTAA provides that the taxable value of a board fringe benefit may be reduced through the application of the ‘otherwise deductible’ rule.

As employees are acting in the course of their employment throughout the duration of each deployment, including during intervals or interludes, if they had incurred expenses on meals these would have been deductible under section 8-1 of the ITAA 1997.

The ‘otherwise deductible’ rule under section 37 of the FBTAA will therefore apply to reduce the taxable value of the residual fringe benefit to nil.

Question 3

If the answer to Question 1 is no, is the provision of the accommodation to the employees at the deployment location during the period of deployment an exempt benefit under subsection 47(5) of the FBTAA?

Summary

Consideration of this question is not necessary as the ‘otherwise deductible’ rule under section 52 of the FBTAA applies to reduce the taxable value of the accommodation provided to employees to nil.


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