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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1051491907817

Date of advice: 19 March 2019

Ruling

Subject: Fringe Benefits Tax and overseas employees working in Australia

Question 1

Does the reimbursement of accommodation and meal expenses to the assignee constitute an expense payment fringe benefit under section 20 of the FBTAA? If so, are the expense payment fringe benefits:

Answer

Yes. The reimbursement of accommodation by Overseas Co to the assignees would constitute an expense payment fringe benefit under section 20 of the FBTAA but as Overseas Co would make a no-private-use declaration, an exemption under section 20A would apply and no Fringe Benefits Tax (FBT) would be payable provided that the assignees are on short term work assignments of 90 days or less. Alternatively, the Otherwise deductible rule under section 24 would apply to reduce the taxable value of the residual expenses to nil provided that the assignees are on short term work assignments of 90 days or less.

Question 2

Does the provision of accommodation to an assignee not living in their usual place of residence constitute a residual fringe benefit under section 45 of the FBTAA? If so, are the residual fringe benefits:

Answer

Yes. The provision of accommodation by Overseas Co to the assignees would constitute a residual fringe benefit under section 45 of the FBTAA but if Overseas Co makes a no-private-use declaration, an exemption under section 47A would apply and no FBT would be payable provided that the assignees are on short term work assignments of 90 days or less. Alternatively, the Otherwise deductible rule under section 52 would apply to reduce the taxable value of the benefit provided that the assignees are on short term work assignments of 90 days or less.

Question 3

Does the provision of meals to an assignee not living in their usual place of residence constitute a property fringe benefit under section 40 of the FBTAA? If so, would the Otherwise Deductible Rule (under section 44 of the FBTAA) have application where the assignees gives the appropriate documentary evidence to the employer within the terms of section 44 of the FBTAA?

Answer

Yes, the provision of meals to an assignee would be a property fringe benefit under section 40 of the FBTAA. If Overseas Co, solely or via a third party, provides meals to non-resident assignees temporary working in Australia on short term assignments for up to 90 days, the benefit is not subject to FBT as the property fringe benefit provided is subject to the ‘otherwise deductible’ rule under section 44 which would reduce the taxable value to nil.

Question 4

In respect to the per diems paid to assignees temporary working in Australia:

Answer

This ruling applies for the following period:

01 April 2018 to 31 March 2020

The scheme commences on:

1 April 2018

Relevant facts and circumstances

Background

Established in 200X, Overseas Co Consulting Private Limited (Overseas Co) is an Country X resident corporation with branches in the Country Y and Country Z and an Australian entity and permanent establishment in Australia. Its principal business is providing cost effective IT solutions to clients across around the world.

Overseas Co’s clients range from multinationals to small and medium enterprises and not for profits.

Overseas Co provides custom information technology, consulting and business process outsourcing services. These include customisations, product development and implementation on the X.com platform across the complete life cycle from planning, designing, innovation, development and testing to implementation, roll out and maintenance.

Overseas Co commenced activities in Australia in 200X and its activity in Australia has accelerated in recent years. Since 20XX a significant population of inbound business travellers have been travelling into Australia from India.

In Australia, there is a separate Australian entity “Australia Co” Pty Ltd (“Australia Co”) which is responsible for sales and contracting with the local clients in Australia. In addition, Overseas Co has a permanent establishment in Australia (an office in an Australian city) for the assignees from Country X who come to Australia to provide services to the Australian customers.

Nature of Employment

Overseas Co is engaged in a number of different projects in Australia. In some of these projects, work can be performed by individuals based outside of Australia. And for other projects, work is required to be carried out at onsite locations located in Australia whether it’s Overseas Co or Australia Co’s office or a client’s office. The work that is carried out in Australia may involve project management, business development or highly skilled technical work.

The assignees working on projects in Australia either chosen by Overseas Co or sometimes by the clients themselves and the length of the projects can be from a few weeks to several years. But the period of time the assignees spend working on a project in Australia is based on the assignees skills and the requirements of the project.

The assignees traveling to Australia are all from Country X, and such assignees work mainly in City A and City B and occasionally in City C.

Fact Pattern of Business Travel to and from Australia

The fact pattern of the relevant assignees for the purpose of this ruling request is as follows:

Overseas Co’s requirements for employees utilising Australian Temporary Work (Short Stay Specialist) visa (subclass 400) is driven by the non-ongoing nature of activities usually performed for less than 3 months. Typical work activities performed by assignees on these visas include (but are not limited to): knowledge transition activities, business development activities including due diligence, scoping and consulting activities. The activities are generally billable to Overseas Co’s clients.

For billable projects, Overseas Co has only started filing applications for the Temporary Work (Short Stay Specialist) visa (subclass 400) since January 20XX. Based on the Temporary Work (Short Stay Specialist) visas (subclass 400) under process or already issued, periods of travel vary from 2 weeks to 3 months. All of the assignees travelling on the Temporary Work (Short Stay Specialist) visa (subclass 400) are Country X inbounds.

Conditions of Business Travel to and from Australia

The assignees who are the subject of this ruling travel to Australia to work on Overseas Co’s projects based in Australia. They provide a short term specialist resource to fill a gap that cannot be filled by locally based employees.

The inbound assignees will generally be present in Australia for a period of up to 3 months. In all cases, the following commonalities exist:

Employment: All assignees remain employed by their home location employer, being Overseas Co.

Salary: Salary is paid by the home location employer the entire time that the assignee works in a location that is not their home location.

Home Location Housing: Assignees retain their place of residence in the home location and are living in temporary accommodation whilst away from their home location.

Visas: Inbound assignees are temporarily in Australia on a subclass 400 visa. Given the usual short term duration of travel and tasks undertaken, the 400 visa is most appropriate. These are obtained by the Overseas Co permanent establishment entity.

Per diems: Per diems are provided to assignees to offset meals and other costs incidental to the assignment.

Housing: Individuals receive housing provided by Overseas Co or are reimbursed expenses for hotel accommodation.

Home Country Tax and Social Security Liability: Assignees remain tax resident of their home country and subject to tax and social security in their home country.

Direction and Control

The assignees are provided with instructions by Overseas Co prior to departure pertaining to the location at which they will be working and the activities to be undertaken.

Assignees will undertake work for Overseas Co in the location they are travelling to. Overseas Co bears the responsibility for any work produced by the assignees and would be responsible for claims arising out of any defective work produced by the assignees or for any act of fraud or negligence while the assignee is working in their jurisdiction. The assignees remain employed by the India entity and under its control.

Assignee Meal and Accommodation Arrangements

The meals are accounted for with a per diem based on a standard rate of $X per day and up to $X per day if the company guest house is not available.

Generally accommodation is provided by Overseas Co in a property rented by Overseas Co for the purpose of housing assignees. The accommodation may also be provided to the assignees in the form of a hotel (or equivalent) in Australia. In some cases, the assignees will initially incur the expenditure and be reimbursed by Overseas Co.

PAYG Withholding

The relevant assignees have had the appropriate PAYG withholding amounts deducted from their wages.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986

Income Tax Assessment Act 1936

Subsection 23L(1)

Income Tax Assessment Act 1997

Taxation Administration Act 1953

Section 12-35 of Schedule 1

Reasons for decision

Summary

The reimbursement of accommodation by Overseas Co to the assignees would constitute an expense payment fringe benefit but as Overseas Co would make a no-private-use declaration, an exemption under section 20A of the FBTAA would apply and no Fringe Benefits Tax (FBT) would be payable. Alternatively, the Otherwise deductible rule under section 24 would apply to reduce the taxable value of the residual expenses to nil and no FBT would be payable.

Detailed reasoning

Is a benefit provided?

As provided in subsection 136(1) of the FBTAA, the term ‘benefit’ includes any right, privilege, service or facility.

Based on the facts, accommodation and meal expenses are occasionally paid by the employees and later reimbursed by Overseas Co. These reimbursements would constitute a ‘benefit’ as defined in subsection 136(1) of the FBTAA.

Is there a ‘fringe benefit’?

The term ‘fringe benefit’ is defined in subsection 136(1) of the FBTAA as follows:

The benefit is provided to an employee or an associate of the employee

An ‘employee’ is defined in subsection 136(1) of the FBTAA to mean a current, future or former employee. ‘Current employee’ means a person who receives, or is entitled to receive, salary or wages.

‘Salary or wages’ is defined in subsection 136(1) of the FBTAA as:

(a) a payment from which an amount must be withheld (even if the amount is not withheld) under a provision in Schedule 1 to the Taxation Administration Act 1953 listed in the table, to the extent that the payment is assessable income; …

The table in the definition of ‘salary or wages’ in subsection 136(1) of the FBTAA includes section 12-35 of Schedule 1 of the Taxation Administration Act 1953 (TAA), which states:

As such, the assignees’ satisfy the definition of ‘current employee’ for the purposes of subsection 136(1) of the FBTAA, and the benefit is provided to an employee.

The benefit is provided by the employer, an associate of the employer or a third party

As discussed above, a fringe benefit includes a benefit provided by:

Subsection 136(1) of the FBTAA provides that ‘employer’ means a current, future or former employer, and ‘current employer' means 'a person (including a government body) who pays, or is liable to pay, salary or wages …’.

When the assignee is located in Australia, the assignees’ accommodation may be provided directly by Overseas Co, where the company either pays for accommodation for the assignees (refer Issue 1, question 2), or alternatively, reimburses the assignee for the accommodation cost.

In these scenarios, Overseas Co is the employer and is providing the benefit.

Therefore, the benefit is provided by the employer and would also meet the requirements of a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA.

The benefit is provided in respect of the employment of the employee

As per subsection 136(1) of the FBTAA, ‘in respect of’ in relation to the employment of an employee includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.

In J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 (Knowles), the full Federal Court – in examining the meaning of ‘in respect of’ an employee’s employment – held that the phrase required a ‘nexus, some discernible and rational link, between the benefit and employment’, though noted that ‘what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment’.

Based on the facts, the connection between the accommodation benefits received by Overseas Co employees while travelling to Australia on assignment and their employment is material and sufficient, and not merely causal.

As such, the requirement of the definition of ‘fringe benefit’ in subsection 136(1) of the FBTAA is satisfied.

Is the benefit excluded under the definition of ‘fringe benefit’?

Section 20 of the FBTAA provides that an expense payment fringe benefit arises when an employer pays for or reimburses expenses (such as food or accommodation) incurred by an employee. From the facts in this case, the assignees located in Australia may in certain instances, be reimbursed by Overseas Co for the accommodation and meal expenses incurred by the assignees.

The reimbursement of such expenditure would be an expense payment benefit under section 20 and would be subject to FBT.

This payment under section 20 will not be subject to FBT if it is exempt benefit and excluded under paragraph (g) of the definition of ‘fringe benefit’ in subsection 136(1) of the FBTAA.

Section 20A (expense payment benefits) of the FBTAA provides an exemption in relation to ‘no-private-use declarations’. That is, if the employer makes a ‘no-private-use’ declaration under section 20A of the FBTAA, then this benefit will be excluded under the definition of ‘fringe benefit under subsection 136(1) of the FBTAA by virtue of the fact that reimbursement is an exempt benefit under section 20A.

No-private-use declaration - expense payment benefits exemptions

An expense payment benefit that is covered by a No-private-use declaration – expense payment benefits is an exempt benefit under subsection 20A(2) of the FBTAA.

A condition of this exemption is that the expense payment benefit that arises is wholly employment related and that, as such, under the ‘otherwise deductible’ rule (ODR), the expense payment benefit would have a taxable value of nil as the assignee would be entitled to an income tax deduction if the payment or reimbursement had not been made by the employer.

From the facts provided, Overseas Co has made ‘no-private use’ declarations in respect to the any reimbursements made for accommodation and food in respect of the assignees.

Condition for exemption under 20A- expense must be otherwise deductible to the assignee

Section 8-1 of the ITAA 1997 outlines that individuals can deduct from their assessable income any loss or outgoing to the extent that it is incurred in gaining or producing assessable income and is not capital, private or domestic in nature.

Draft Taxation Ruling TR 2017/D6 Income tax and fringe benefits tax: when are deductions allowed for employees’ travel expenses? (TR 2017/D6) discusses accommodation at paragraphs 50 to 98.

Paragraph 54 of TR 2017/D6 explains that accommodation expenses are incurred by an employee in performing an employee’s work activities, and are therefore deductible, only where:

Where an employee incurs expenses in relocating to a place of work or in living away from home to work, they are preliminary to the work and not deductible. Such expenses often reflect a choice the employee has made, including their choice about where to live (paragraphs 52-53 of TR 2017/D6).

The principles discussed in these paragraphs are based on the decisions in Lunney and Hayley v. FCT (1958) 100 CLR 478; FCT v. Charlton (1984) 71 FLR 107 (Charlton); FCT v. Toms (1989) 20 ATR 466 (Toms); Roads and Traffic Authority (NSW) v. FCT 93 ATC 4508 (RTA); Fullerton v. FCT (1991) 32 FCR 486 and Hancox v. FCT [2013] FCA 735 (Hancox).

To the extent accommodation costs are of a private or domestic nature, they may need to be apportioned to reflect use of the accommodation for private purposes (paragraph 86 of TR 2017/D6).

It is clear from the facts that the assignees satisfy (a), (b) and (c) in paragraph 54 of TR 2017/D6, however (d), whether the assignees are living away from home, requires further consideration.

The following factors, which are also based on principles from the decisions in RTA, Charlton, Toms, and Hancox, are relevant in determining whether an employee is living away from home (paragraph 72 of TR 2017/D6):

Further, TR 2017/D6 explains that:

We refer to Example 17 in TR 2017/D6, which demonstrates the ATO view on accommodation expenses for a secondment to Australia for between 90 and 120 day project work, and is similar to the circumstances in this ruling.

Paragraph 241 shows that a stay of 90-120 days in one location is viewed as considerable, is less likely to be ‘travelling for work purposes’, and is more likely to indicate an employee is living away from home.

Applying the living away from home factors to the assignees’ circumstances:

Based on the facts above, it is the Commissioner’s view (refer to TR 2017/D6) that the assignees are not ‘living away from home’ when they work in Australia for periods not exceeding 90 days, and condition (d) in paragraph 54 of TR 2017/D6 is satisfied.

The nature of the travel based on the facts provided appears to be work related travel and therefore would be deductible to the assignee.

The condition of the exemption provided under section 20A has been satisfied in that the expense payment benefit would have a taxable value of nil as the employee would have been entitled to an income tax deduction if the reimbursement had not been made by the employer.

Consequently, the employer is eligible to make a non-private use declaration under section 20A of the FBTAA in order that this particular type of expense payment benefit is an exempt benefit.

Otherwise Deductible Rule

As discussed above, under the circumstances provided in the facts, the reimbursement of the assignees’ accommodation expenses is an exempt benefit and is not subject to fringe benefits tax where a no-private-use declaration is made by Overseas Co.

Division 5 of the FBTAA provides an ‘otherwise deductible rule’ (ODR) which may apply to reduce the taxable value of a fringe benefit. The ODR operates under the assumption that instead of the employer incurring expenses in relation to the benefit, or the employer paying or reimbursing the employee expenses, the employee incurs and pays unreimbursed expenses.

The general effect of section 24 of the FBTAA is to reduce the taxable value of an expense payment fringe benefit, to the extent to which the employee would have been entitled to a “once-only” income tax deduction for the expense.

As discussed above, paragraph 54 of TR 2017/D6 explains that accommodation expenses are deductible by an employee only where:

Expenses are not deductible to the extent they are of a private or domestic nature (paragraph 86 of TR 2017/D6). In some circumstances, accommodation costs have to be apportioned to reflect use of the accommodation for private purposes.

As paragraphs (a) to (d) of TR 2017/D6 are satisfied in relation to the accommodation provided to the assignees whilst working in Australia, under the assumption that the assignee incurred the expenses themselves and was not reimbursed by Overseas Co, the assignee would be entitled to an income tax deduction for these expenses.

As such, to the extent that the expense is a deductible expense to the assignee, the ODR applies to reduce the taxable value of the expenses to nil, and no fringe benefits tax is payable on the benefits provided an ‘Otherwise Deductible’ declaration is obtained from the applicable employee.

Conclusion

The reimbursement of accommodation and meals would be an expense payment fringe benefit under section 20 of the FBTAA that would be subject to FBT. Having said this, no FBT would be payable because an exemption would be granted under section 20A. Alternatively, the FBT could also be reduced or eliminated by utilising the ODR under section 24 of the FBTAA.

Summary

The provision of accommodation by Overseas Co to the assignees would constitute a residual fringe benefit under section 45 but if Overseas Co makes a no-private-use declaration, an exemption under section 47A of the FBTAA would apply and no FBT would be payable. Alternatively, the Otherwise deductible rule under section 52 would apply to reduce the taxable value of the benefit.

Detailed reasoning

For the same reasoning in Question 1, there is an ‘employer’ and an ‘employee’ for the purposes of subsection 136(1) of the FBTAA.

Also pursuant to the reasoning given to Question 1, there is a ‘benefit’ as well as a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA being the provision of accommodation to an assignee not living in their usual place of residence.

Is the benefit excluded under the definition of ‘fringe benefit’?

Section 45 of the FBTAA is about residual fringe benefits which covers any fringe benefit not specifically covered by other specific categories of other fringe benefits of Subdivision A of Divisions 2 to 11 of the FBTAA. From the facts in this case, temporary use of accommodation is provided to assignees that are not living in their usual place of residence.

The provision of such accommodation by Overseas Co to the assignees is a residual benefit under section 45 of the FBTAA and would be in itself subject to FBT.

But this provision of accommodation under section 45 will not be subject to FBT if it is exempt benefit and excluded under paragraph (g) of the definition of ‘fringe benefit’ in subsection 136(1) of the FBTAA.

Section 47A of the FBTAA provides an exemption in relation to ‘no-private-use declarations’. That is, if the employer makes a ‘no-private-use’ declaration under section 47A of the FBTAA, then this benefit will be excluded under the definition of ‘fringe benefit under subsection 136(1) of the FBTAA by virtue of the fact that reimbursement is an exempt benefit under section 47A.

No-private-use declaration - expense payment benefits exemptions

A residual benefit that is covered by a No-private-use declaration – residual payment benefits is an exempt benefit under section 47A of the FBTAA.

A condition of this exemption is that the residual payment benefit that arises is wholly employment related and that, as such, under the ‘otherwise deductible’ rule (ODR), the residual payment benefit would have a taxable value of nil as the assignee would be entitled to an income tax deduction if the payment had not been made by the employer.

From the facts provided, Overseas Co has made ‘no-private use’ declarations in respect to the any accommodation provided to the assignee in Australia not living in their usual place of residence.

Condition for exemption under 47A- expense must be otherwise deductible to the assignee

As concluded in Issue 1, Question 1 above, the nature of the travel of the assignees working in Australia appears to be work related travel as opposed to assignees living away from home.

For similar reasons given in Issue 1, Question 1, Overseas Co provides accommodation to the assignees that are not living at their usual place of residence. The assignees are located in accommodation near their work site and their family has not accompanying them in this accommodation near the work sites.

Also for the same reasons outlined in Issue 1, Question 1 above, the condition of claiming the exemption provided under section 47A has been satisfied in that the residual payment benefit would have a taxable value of nil as the employee would be entitled to an income tax deduction if the provision of accommodation expense not been made by the employer.

Consequently, the employer is eligible to make a non-private use declaration under section 47A of the FBTAA in order that this particular type of residual benefit is an exempt benefit.

Otherwise Deductible Rule

As discussed above, the reimbursement of the assignees’ accommodation expenses is an exempt benefit and is not subject to fringe benefits tax where a no-private-use declaration is made by Overseas Co.

Divisions 12 of the FBTAA provide an ‘otherwise deductible rule’ (ODR) which may apply to reduce the taxable value of a fringe benefit. The ODR operates under the assumption that instead of the employer incurring expenses in relation to the benefit, or the employer paying or reimbursing the employee expenses, the employee incurs and pays unreimbursed expenses.

The general effect of section 52 of the FBTAA is to reduce the taxable value of an expense payment fringe benefit, to the extent to which the employee would have been entitled to a “once-only” income tax deduction for the expense.

As discussed above, paragraph 54 of TR 2017/D6 explains that accommodation expenses are deductible by an employee only where:

Expenses are not deductible to the extent they are of a private or domestic nature (paragraph 86 of TR 2017/D6). In some circumstances, accommodation costs have to be apportioned to reflect use of the accommodation for private purposes.

As paragraphs (a) to (d) of TR 2017/D6 are satisfied in relation to the accommodation provided to the assignees whilst working in Australia, under the assumption that the assignee incurred the expenses themselves and were not reimbursed by Overseas Co, the assignee would be entitled to an income tax deduction for these expenses.

As such, to the extent that the expense is a deductible expense to the assignee, the ODR applies to reduce the taxable value of the expenses to nil, and no fringe benefits tax is payable on the benefits provided an ‘Otherwise Deductible’ declaration is obtained from the applicable employee.

Conclusion

The provision of accommodation would be a residual fringe benefit under section 45 of the FBTAA and would be subject to FBT. Having said this, no FBT would be payable because an exemption would be granted under section 47A. Alternatively, the FBT could also be reduced or eliminated by utilising the ODR under section 52 of the FBTAA.

Summary

The provision of meals to an assignee would be a property fringe benefit under section 40 of the FBTAA. If Overseas Co, solely or via a third party, provides meals to non-resident assignees temporary working in Australia on short term assignment for up to 90 days the benefit is not subject to FBT as the property fringe benefit provided is subject to the ‘otherwise deductible’ rule which would reduce the taxable value to nil.

Detailed reasoning

As stated in their facts, Overseas Co will provide meals to assignees not living in their usual place of residence, and this would be treated as a ‘benefit’ as well as a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA.

For the same reasons discussed in Issue 1, Question 1, in the event that meals are provided to assignees not living in their usual place of residence, the first four requirements of a fringe benefit would be have been met: 1) a benefit has been provided, 2) to an employee (or associate), 3) by the employer or a third party, 4) in respect of the employment of the employee.

Overseas Co of another third party providing meals to an assignee will be a property benefit under section 40 of the FBTAA.

Paragraph 21 of TR 97/17 states that an employee who is travelling in the course of performing their employment duties, any food or drink that the employer provides, in the absence of supplementary entertainment, would not be meal entertainment for the employee for the purposes of Division 9A of the FBTAA. On the basis of this, it is accepted that any meals that Overseas Co provides to its assignees travelling in Australia would not constitute meal entertainment.

If this property benefit was provided (in lieu of or in addition to the per diem), it would likely be provided within the assignee’s’ accommodation or chosen restaurant. If this was the case then this property benefit would be a fringe benefit and will not meet the conditions in section 41 of the FBTAA for it to be considered an exempt property benefit.

Therefore, the provision of any meals to the assignees would be a property fringe benefit.

Otherwise Deductible Rule

Divisions 11 of the FBTAA provide an ‘otherwise deductible rule’ (ODR) which may apply to reduce the taxable value of a fringe benefit. The ODR operates under the assumption that instead of the employer incurring expenses in relation to the benefit, or the employer paying or reimbursing the employee expenses, the employee incurs and pays unreimbursed expenses.

The general effect of section 44 of the FBTAA is to reduce the taxable value of a property fringe benefit, to the extent to which the employee would have been entitled to a “once-only” income tax deduction for the expense.

Expenses are not deductible under section 8-1 to the extent they are of a private or domestic nature.

Where the property fringe benefit is subject to FBT, the taxable value of the fringe benefit may, in certain circumstances, be reduced under the 'otherwise deductible' rule. This rule provides that the taxable value of relevant fringe benefits may be reduced to the extent that an income tax deduction would have been available to the employee if that employee had incurred and paid the expense. In most cases the use of the 'otherwise deductible' rule must be supported by certain documents such as receipts and employee declarations.

As such, to the extent that the expense is a deductible expense to the assignee, the ODR applies to reduce the taxable value of the expenses to nil, and no fringe benefits tax is payable on the benefits provided an ‘Otherwise Deductible’ declaration is obtained from the applicable assignee.

Conclusion

As discussed in Issue 1, Question 1 we consider that the assignee is not living away from home when on assignment in Australia where the duration at any one location doesn’t exceed 90 days. The assignees are travelling in Australia for work related purposes.

Therefore, the Commissioner accepts that the taxable value of any meals that may be provided to the Overseas Co assignees on assignment to Australia for a period of less than 90 days will be able to be reduced using the ‘otherwise deductible’ rule under section 44 of the FBTAA.

Question 4 In respect to the per diems paid to assignees temporary working in Australia:

Summary

If Overseas Co provides a per diem to non-resident assignees temporarily working in Australia on a short term assignment the allowance paid is not subject to FBT as a living-away-from-home allowance provided the duration of the assignment does not exceed 90 days in any one project location. Instead, the pier diem would be classified as a travel allowance. Moreover, there is no withholding requirement for the per diems.

Detailed reasoning

FBT and Living Away from Home allowance

Subsection 30(1) of the FBTAA deals with living-away-from-home-allowance (LAFHA) benefits under an employee/employer relationship where the payment is in respect of the employee’s employment.

A LAFHA is an allowance the employer pays to their employee to compensate the employee for additional expenses incurred and any disadvantages suffered because the employee duties of employment require them to live away from their normal residence.

Additional expenses do not include expenses for which the employee would be entitled to claim as income tax deduction (deductible expense’ is defined in subsection 136(1) of the FBTAA, as an expense incurred by the employee in respect of which a deduction is allowable to the employee under section 8-1 of the ITAA 1997).

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

The term ‘normal residence’ is defined in subsection 136(1) of the FBTAA. For an employee whose usual of residence is in Australia, then their normal residence is that usual place of residence. For an employee whose usual place of residence is not in Australia and they do not have a place in Australia where they usually reside while living in Australia, then their normal residence is their usual place of residence overseas.

An employee is regarded as living away from their usual place of residence if they would have continued to live at the former place had the duties of their employment not required them to work temporarily in the new locality.

Chapter 11 of the Tax Office publication ‘Fringe Benefits Tax: A guide for Employers’ explains what a LAFHA is and the distinction between a LAFHA and a travelling allowance. TR 2017/D6 sets out the general treatment for determining whether an employee can deduct travel expenses under section 8-1 of the ITAA 1997.

Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits (MT 2030) previously provided the Commissioner’s view in relation to a LAFHA. MT 2030 was withdrawn on 12 July 2017 because of significant changes to the FBTAA since it was issued in 1986. Those changes are discussed in Chapter 11 of the Fringe benefits tax: a guide for employers. Where appropriate, other matters considered in MT 2030 have been included in TR 2017/D6.

It is important to determine what type of allowance is being paid as the tax treatment of a travelling allowance and living-away- from-home allowance (LAFHA) is different in the hands of the employee.

A travelling allowance (which includes accommodation, meals and incidentals) is paid because an employee is travelling in the course of performing their job, does not involve a change of job location, is paid for shorter periods, and where the employee has a spouse and family they generally do not accompany them. A travelling allowance is not subject to FBT and is generally assessable income to an employee.

A LAFHA on the other hand is paid where an employee has taken up temporary residence away from their normal residence to perform their employment duties, is considered to have changed their job location, it is more common for the employees spouse and family to accompany them and the allowance is paid for longer periods.

A LAFHA is not included in the employee’s assessable income because it is a fringe benefit which is non-assessable non-exempt income (subsection 23L(1) of the ITAA 1936). The definition of a fringe benefit in subsection 136(1) of the FBTAA excludes salary and wages.

Overseas Co employees who are on assignment in Australia are not provided with a LAFHA but are instead provided with a daily travelling allowance (referred to as a per diem) as a contribution towards food, laundry and other incidental expenses the assignees will incur during their short time in Australia.

As discussed in Issue 1, Question 1 we consider that the assignee is not living away from home when on assignment in Australia where the duration at any one location doesn’t exceed 90 days.

The Commissioner accepts that the daily per diem paid to the Overseas Co employees travelling on assignment to Australia for a period of less than 90 days to any one of the project locations, to cover food and incidentals whilst performing their employment duties in Australia, is not a LAFHA under section 30 of the FBTAA as the allowance is to cover deductible expenses. Instead, the per diem is a travelling allowance which is not subject to FBT.

Obligation to withhold on Per Diems

As mentioned in the paragraph above, the pier diem would be classified as a travel allowance not subject to FBT.

Under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) an entity must withhold an amount from salary, wages and allowances it pays to an individual as an employee (whether of that or another entity).

Accordingly, Overseas Co will have an obligation to withhold tax under section 12-35 of Schedule 1 to the TAA 1953 because the allowance is paid by Overseas Co to its employees whilst they are in Australia on assignment.

In 2015, the Commissioner issued a legislative instrument not requiring employers to withhold PAYG tax where it is expected that the allowance would be fully expended in the course of an employee providing their services and the employee is not required to substantiate their expenses.

The per diem (allowance) meets these requirements as, in the circumstances, Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses (and Taxation Determination TD 2018/11 Income Tax: what are the reasonable travel and overtime meal allowance expense amounts for 2018-19 income year?) applies because the allowances paid are below the reasonable amounts specified in the TD 2018/11 meaning that the assignees will not have to substantiate their expenses.

Therefore, provided the daily per diems do not exceed the reasonable amounts published by the Commissioner for the relevant income year, Overseas Co will not be required to withhold tax from the allowance paid to Overseas Co employees travelling to Australia on assignment for up to 90 days.

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