Edited version of your written advice

Authorisation Number: 1051490672706

Date of advice: 27 March 2019

Ruling

Subject: FBT: Living–away-from-home-allowance (LAHFA) and Relocation Exemptions

Question 1

Is the allowance paid to the employee a living-away-from-home allowance (LAHFA) fringe benefit for the purposes of section 30 of the Fringe Benefit Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

If the allowance paid to the employee is a living-away-from-home allowance (LAFHA) fringe benefit for the purposes of section 30 of the Fringe Benefit Tax Assessment Act 1986 (FBTAA), will it be exempt from fringe benefits tax (FBT) under section 31 of the FBTAA?

Answer

No

Question 3

Where costs incurred by the employer of relocating a current employee overseas are exempt under Division 13 of the Fringe Benefit Tax Assessment Act 1986 (FBTAA) are they deductible under 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following period:

Year ending 31 March 2019

Year ending 31 March 2020

The scheme commences on:

1 April 2018

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

1. The company (‘the company’/’employer’) is an Australian resident proprietary company.

2. The company is an employer.

3. The company wishes to expand the business overseas.

4. The company would like to relocate a current employee and their family overseas.

5. The company’s intention is to relocate the employee and their family for a year to see how it goes.

6. The company would like to pay for relocation costs on behalf of the employee.

7. During the time that the employee is temporarily relocated overseas the employee will maintain their home in Australia.

8. This home is where the employee and their family currently reside.

9. The employee intends to rent out this home through a booking service while they are temporarily relocated overseas.

10. The company would like to pay a living-away-from-home allowance (LAHFA) to the employee as compensation for additional expenses incurred while temporarily living away from their residence in Australia.

11. The company would also like to pay relocation costs associated with the employee temporarily relocating overseas.

Relevant legislative provisions

Fringe Benefits Assessment Act 1986 Division 7 of Part III

Fringe Benefits Assessment Act 1986 Section 30

Fringe Benefits Assessment Act 1986 Section 31

Fringe Benefits Assessment Act 1986 Subsection 31(1)

Fringe Benefits Assessment Act 1986 Paragraph 31(1)(b)

Fringe Benefits Assessment Act 1986 Subsection 31(2)

Fringe Benefits Assessment Act 1986 Section 31B

Fringe Benefits Assessment Act 1986 Section 31C

Fringe Benefits Assessment Act 1986 Paragraph 31C(a)(ii)

Fringe Benefits Assessment Act 1986 Subsection 136(1)

Fringe Benefits Assessment Act 1986 Division 13 of Part III

Fringe Benefits Assessment Act 1986 Section 58AA

Fringe Benefits Assessment Act 1986 Section 58B

Fringe Benefits Assessment Act 1986 Section 58 D

Fringe Benefits Assessment Act 1986 Section 58 E

Fringe Benefits Assessment Act 1986 Section 58 F

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Question 1

Is the allowance paid to the employee a LAHFA fringe benefit for the purposes of section 30 of the FBTAA?

Summary

The allowance paid to the employee will be a LAFHA fringe benefit for the purposes of section 30 of the FBTAA as it meets the requirements of subsection 30(1) of the FBTAA.

Detailed reasoning

1. An allowance paid to an employee will only be a LAFHA fringe benefit for the purposes of section 30 of the FBTAA if it meets the requirements of subsection 30(1) of the FBTAA.

2. Subsection 30(1) of the FBTAA states:

Where:

(a) at a particular time, in respect of the employment of the employee of an employer, the employer pays an allowance to the employee; and

(b) it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for:

i. additional expenses (not being deductible expenses) incurred by the employee during a period; or

ii. additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject, during a period;

by reason that the duties of that employment require the employee to live away from his or her normal residence;

the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time.

3. In summary, for a payment to an employee to be considered a LAFHA fringe benefit, 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.

4. These requirements in relation to the allowance paid by you to the employee are considered below.

1. Is the allowance paid to the employee an allowance paid by you in respect of the employee’s employment?

The ATO publication, Fringe benefits tax: a guide for employees¹, provides guidance on what is meant by the term, ‘in respect of employment’.

In Chapter 1 of Fringe benefits tax: a guide for employers it is stated:

According to the fringe benefits tax (FBT) legislation, a fringe benefit is a benefit provided in respect of employment. This effectively means a benefit is provided to somebody because they are an employee. The 'employee' may even be a former or future employee.

It is accepted that the allowance is provided by you because the employee is an employee of yours.

Accordingly, the allowance is an allowance paid by you to the employee in respect of their employment and therefore, this requirement is satisfied.

2. Do the duties of employment require the employee to live away from their normal residence at the time the allowance is paid?

‘Normal residence’ is defined in subsection 136(1) of the FBTAA as the employee’s usual place of residence, when the employee’s usual place of residence is in Australia.

The FBTAA does not provide a definition of the term ‘usual place of residence’.

However, subsection 136(1) of the FBTAA defines ‘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 a shared basis.

In the absence of a legislative reference, it is relevant to refer to the ordinary meaning of the word ‘usual’. The Macquarie Dictionary defines ‘usual’ to mean: ‘habitual or customary…’

Taxation Ruling TR 2017/D6 Income tax and fringe benefits tax: when are deductions allowed for employees’ travel expenses provides guidance for determining an employee’s usual place of residence.

Paragraph 75 of TR 2017/D6 states:

75. Whether an employee is living away from their ‘usual place of residence’ usually involves a choice between two places of residence- where the employee is living at the time and the location of the work.

76. An employee is only living away from home where it is reasonable to conclude that they intend to return to their previous location after work at the new location ceases. An employee who has permanently left their previous location is not living away from home but has relocated.

77. Indicators that an employee has a usual place of residence at a previous location include the employee’s ownership or possession of premises at that location and occupation of the premises by the members of the employee’s family.

Your employee owns a unit of accommodation in Australia which they currently reside in and intend to return to when their work overseas is completed. It is accepted that your employee’s normal residence is in Australia.

You intend to temporarily relocate the employee overseas for a period of 12 months during which time they will be paid an allowance by you.

Accordingly, the duties of their employment will require the employee to live away from their normal residence at the time the allowance is paid and therefore, this requirement is satisfied.

3. Is the allowance paid wholly or partly to compensate the employee for additional, non-deductible expenses incurred because of their requirement to live away from their normal residence?

The allowance is paid to the employee to cover the additional expenses of food and accommodation incurred while they live in overseas for 12 months. As these expenses are private in nature, the employee will not be able to claim an income tax deduction for them.

Accordingly, the allowance is paid wholly or partly to compensate the employee for additional, non-deductible expenses incurred because of their requirement to live away from their normal residence and therefore, this requirement is satisfied.

Conclusion

5. The allowance paid to the employee will be a LAFHA fringe benefit for the purposes of section 30 of the FBTAA as it meets the requirements of subsection 30(1) of the FBTAA.

Question 2

If the allowance paid to the employee is a LAFHA fringe benefit for the purposes of section 30 of the FBTAA, will it be exempt from fringe benefits tax (FBT) under section 31 of the FBTAA?

Summary

The allowance paid to the employee meets the requirements of a LAHFA fringe benefit for the purposes of section 30 of the FBTAA.

However, as the employee intends to rent out their home through a booking service during the period that they are temporarily relocated, we consider that as the tenants stay will impinge on the availability of the residence for the employee’s immediate use and enjoyment, they will not satisfy paragraph 31C(a)(ii), and consequently the LAHFA will not be exempt from fringe benefits tax (FBT) under section 31 of the FBTAA?

Detailed reasoning

Background

1. The Revised Explanatory Memoranda to the Tax Laws Amendment (2012 Measures No. 4) Bill 2012 provides the background to the introduction of a tax concession for a LAFHA and an explanation of the reasoning behind the changes to the concession/s up to the present time.

2. A tax concession for a LAFHA was introduced to the income tax system in 1945, for the purposes of compensating an employee for additional expenditure incurred on food and accommodation where an employee is required by their current employer to live away from their usual place of residence, where they are maintaining a residence.

3. LAFHA provisions were moved to the FBT law in 1986 when FBT was introduced, and the incidence of tax shifted to the employer as a fringe benefit.

4. Changes to the living away from home provisions in the FBTAA were implemented in 2012.

5. Prior to the changes, employees were using the concessions to access tax-free amounts even though they were not incurring additional expenses, such as the cost of maintaining two homes. In addition, it was considered that the amount of the allowance may have been in excess of actual expenditure incurred on accommodation and food, and employees were claiming the concessions for extended periods of time. Thus it was believed that the LAHFA concessions were being widely exploited, resulting in a significant and growing cost to revenue.

6. The measures implemented in 2012 limit the concessional tax treatment of LAFHA and benefits provided to employees who maintain a home in Australia for their own use at which they usually reside. Employees must be able to substantiate expenses incurred on accommodation, and food or drink beyond the Commissioner of Taxation's (Commissioner's) reasonable amounts – published in an annual Taxation Determination (TD 2018/3 for the fringe benefits tax year commencing on 1 April 2018). The concessional treatment is limited to a period of 12 months for an employee at a particular work location. To qualify, employees must provide the employer with a declaration relating to living away from home.

Application of current law to your circumstances

7. It is accepted that the allowance considered in question 1 satisfies the requirements to be a LAHFA fringe benefit for the purposes of section 30 of the FBTAA.

8. The taxable value of a LAHFA fringe benefit is calculated in accordance with section 31 of the FBTAA.

9. To determine whether a LAHFA receives concessional tax treatment the criteria under subsection 31(1) of the FBTAA must be satisfied.

10. Subsection 31(1) provides that:

31(1)

This section applies to living-away-from-home allowance fringe benefit covered by subsection 30(1) in relation to a year of tax to the extent that the employee satisfies all of the following for the fringe benefit and the period to which it relates:

(a) section 31C (about maintaining an Australian home);

(b) section 31D (about the first 12 months);

(c) section 31F (about declarations).

11. The concessional tax treatment available in relation to the taxable value of a LAHFA where the criteria in subsection 31(1) are satisfied is calculated as provided for under subsection 31(2), as follows:

31(2)

Subject to this Part, the taxable value of the fringe benefit in relation to the year of tax is the amount of the fringe benefit reduced by:

(a) any exempt accommodation component; and

(b) any exempt food component.

12. In relation to maintaining an Australian home for the purposes of subsection 31(1), section 31C provides that:

31C MAINTAINING A HOME IN AUSTRALIA

The employee satisfies this section if:

(a) the place in Australia where the employee usually resides when in Australia:

(i) is a unit of accommodation in which the employee or the employee’s spouse has an ownership interest (within the meaning of the Income Tax Assessment Act 1997); and

(ii) continues to be available for the employee’s immediate use and enjoyment during the period that the duties of that employment require the employee to live away from it; and

(b) it is reasonable to expect that the employee will resume living at that place when the period ends.

13. Guidance on maintaining a home in Australia is provided in, Fringe benefits tax: a guide for employees at Chapter 11.7 which states;

For the employee to maintain a home for their immediate use and enjoyment at all times, the entire home cannot be rented out or sublet while they are living away from it. The employee must incur the ongoing costs of maintaining the residence, such as mortgage or rental payments and rates. The employee must be able to return to the home at any time and take up immediate occupancy.

14. Therefore, 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.

15. During this time, as well as incurring the ongoing cost of maintaining this residence, the home cannot be rented out or sub-let for any period while they are living away from home as the employee must be able to return to their home at any time and take up immediate occupancy.

16. In your case, the employee is proposing to rent out their home through a booking service during the period that they are temporarily relocated overseas. As the tenant’s stay will impinge on the availability of the residence for the employee’s immediate use and enjoyment, they will not satisfy paragraph 31C(a)(ii) and consequently do not meet the requirements of section 31C to maintain a home in Australia.

17. Accordingly, the employer is not eligible to access any of the FBT exemptions under subsection 31(2) in relation to LAFHA, and subject to section 31B of the FBTAA the taxable value of the LAHFA fringe benefit in relation to the year of tax will be the amount of the benefit provided.

Conclusion

18. Accordingly, the LAHFA fringe benefit will not be exempt from FBT under section 31 of the FBTAA?

Question 3

Where costs incurred by the employer of relocating a current employee overseas are exempt under Division 13 of the FBTAA are they deductible under 8-1 of the ITAA?

Summary

Where a cost incurred by the employer of relocating a current employee overseas is exempt under Division 13 of the FBTAA, the benefit will be a deductible expense under section 8-1 of the ITAA.

Detailed reasoning

1. Under Division 13 of the FBTAA, where an employer meets certain costs associated with relocation of an employee who is required to live away from home because their job location changes, the benefit may be exempt.

2. Costs that may be exempt under these provisions include:

● Engagement of relocation consultant (section 58AA)

● Removals and storage of household effects as a result of relocation (section 58B)

● Connection or re-connection of certain utilities as a result of relocation (section 58D)

● Leasing of household goods while living away from home (section 58E)

● Relocation transport (section 58F)

3. As an employer you may claim an income tax deduction for the cost of providing fringe benefits and for the amount of FBT you pay.

4. The cost you incur as an employer when providing an exempt benefit to your employee will also be an allowable income tax deduction to you under section 8-1 of the ITAA.

Conclusion

5. Accordingly, where an exemption under Division 13 of the FBTAA applies for the cost of supplying a fringe benefit to an employee, the cost incurred to the employer of providing the benefit will be a deductible expense under section 8-1 of the ITAA.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).