Edited version of private advice

Authorisation Number: 1051832999873

Date of advice: 30 April 2021

Ruling

Subject: Living-away-from-home-allowance

Question 1

Are allowances paid to an employee who is required by their employer to be based a significant distance away from their usual place of residence to perform duties in remote locations or other small communities (where self-contained home-like accommodation is provided) for a period up to 3 months assessed under living-away-from-home allowance requirements in Division 7 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 2

Are allowances paid to an employee who is required by their employer to be based a significant distance away from their usual place of residence to perform duties in remote locations or other small communities (where self-contained home-like accommodation is provided) for a period between 3 to 12 months assessed under living-away-from-home allowance requirements in Division 7 of the FBTAA?

Answer

No

Question 3

Are allowances paid to an employee who is required by their employer to be based a significant distance away from their usual place of residence to perform duties in remote locations or other small communities (where self-contained home-like accommodation is provided) for a period that exceeds 12 months assessed under living-away-from-home allowance requirements in Division 7 of the FBTAA?

Answer

No

Question 4

If allowances paid to the employee referred to in questions 1 to 3 are not assessed under Division 7 of the FBTAA, are the allowances subject to PAYG withholding and/or payment summary reporting obligations?

Answer

No

Question 5

Are allowances paid to an employee who is required by their employer to be based a significant distance away from their usual place of residence to perform duties in remote locations or other small communities (where rudimentary accommodation is provided) for a period up to 12 months assessed under living-away-from-home allowance requirements in Division 7 of the FBTAA?

Answer

No

Question 6

Are allowances paid to an employee who is required by their employer to be based a significant distance away from their usual place of residence to perform duties in remote locations or other small communities (where rudimentary accommodation is provided) for a period that exceeds 12 months assessed under living-away-from-home allowance requirements in Division 7 of the FBTAA?

Answer

No

Question 7

If allowances paid to an employee referred to in questions 5 and/or 6 are not assessed under Division 7 of the FBTAA, are the allowances subject to PAYG withholding and/or payment summary reporting obligations?

Answer

No

This ruling applies for the following periods

Year ending 31 March 2021

Year ending 31 March 2022

Year ending 31 March 2023

Year ending 31 March 2024

Year ending 31 March 2025

The scheme commenced on

1 April 2020

Relevant facts

To achieve organisational objectives, an employer engages in planning and management across a State.

Due to the vast geographic area of some districts, some employees are required to travel significant distances to perform the duties of their role. This can necessitate the need for an employee to be based in a location that is a significant distance from their usual place of residence (referred to hereafter as their permanent home).

This ruling request relates to situations where employees are required to reside in remote locations or small communities during the working week because it is unreasonable for them to commute daily between their permanent home and work location.

The position of an employee is a field-based role. A mandatory requirement of the position is to hold a valid Class C (manual) driver licence.

Employees have access to a desk and computer at the employer's office, which is close to their permanent homes, where they attend to administrative tasks periodically (timesheets, reports, meetings and so on).

Employees work Monday to Friday (occasionally on weekends, if necessary) with a requirement to work 38 hours per week, unless there are specific project related requirements.

The employees are not on fly-in fly-out or drive-in drive-out rosters.

The duration that an employee is based in a location depends on circumstances specific to the project(s), program of works and/or review and maintenance required in that area. Projects have a finite life of varying durations. Further, unforeseen events such as natural disasters may cause roadworks to extend beyond a planned completion date.

Employees may be required to change their work location on short notice to respond to urgent works. Employees can be based in a number of different locations during a year. In other instances, employees may be based in a particular location for an extended period without a set end date due to various projects or other roadwork activities in the area.

In all cases, employees maintain permanent homes elsewhere. The employees do not relocate to the location/s where the roadworks occur.

In most cases, employees return to their permanent homes on weekends and other days off. Employees are authorised to use an employer provided vehicle for trips between the work location and their permanent homes.

While the employees may be based in a particular work location for an extended period of time, they regularly return to their permanent homes and/or attend to duties at other locations (as required). They do not spend significant leisure or recreation time at the work locations.

Allowances

The allowances subject to this ruling request are for meals and incidentals.

The maximum allowance rates for breakfast, lunch, dinner and incidentals payable to employees are less than the respective reasonable amounts, as determined by the Commissioner, for all annual salary categories listed in Tables 1 to 3 in TD 2019/11.

The employer does not pay allowances on non-workdays when an employee returns to their permanent home.

Accommodation

Accommodation is selected, booked and paid for by the employer.

Employment activities may occur in remote locations or small communities where accommodation options and facilities are limited. This can mean that living quarters of employees must be shared. However, it is uncommon for the shared living quarters to be used regularly by different employees who are on rotating shifts.

Depending on the location, availability and practical/financial reasons, employees are provided with accommodation that:

•         Includes self-contained/home-like and storage facilities such as a house, unit, apartment and caravan park cabin (generally leased for extended periods); or

•         Does not include self-contained/home-like facilities and has limited storage such as motels with a kitchenette (contains fridge, microwave and kettle).

Where motel rooms are provided, the bookings are generally made for Monday to Friday each week. However, in some cases, at the sole discretion of the employer, motel rooms may be booked for longer periods (including weekends), if it is more cost effective or necessary due to limited accommodation available at the work location.

Family and/or friends do not accompany employees to the work location. Occasionally family or friends may visit employees for short stays at their own expense.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 30(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act 1936 Section 23L

Income Tax Assessment Act 1997 Section 6-15

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 15-2

Income Tax Assessment Act 1997 Subsection 900-30(3)

Reasons for decision

Question 1

Are allowances paid to an employee who is required by their employer to be based a significant distance away from their usual place of residence to perform duties in remote locations or other small communities (where self-contained home-like accommodation is provided) for a period up to 3 months assessed under living-away-from-home allowance requirements in Division 7 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

No. The allowances are not a living-away-from-home allowance (LAFHA) benefit under subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Under subsection 30(1) of the FBTAA, an allowance paid to an employee in respect of their employment will be a LAFHA fringe benefit where it would be concluded that some or all of the allowance is, in the nature of compensation to the employee, for:

•         additional expenses (not being deductible expenses) incurred by the employee, or

•         additional expenses (not being deductible expenses) incurred by the employee and other additional disadvantages to which the employee is subject,

because the employee is required to live away from his or her normal residence in order to perform duties of employment.

The employees are employees of the employer. They are paid an allowance only on the workdays they are required by their employment duties to live away from their normal residence. Accordingly, the allowance paid by the employer to employees is in respect of their employment and paid because their duties of employment require them to live away from their normal residence. The connection between the allowance and an employee's employment will be discussed in greater detail below.

An employee's 'normal residence', as defined in subsection 136(1) of the FBTAA, is their usual place of residence in Australia. This is referred to in the facts as their permanent home.

'Deductible expenses', in relation to an allowance paid to employees, is defined in subsection 136(1) of the FBTAA to mean 'expenses incurred by the employee in respect of which a deduction is allowable to the employee under section 8-1 of the [ITAA 1997] (ignoring Divisions 28, 32 and 900 of that Act).'

To determine whether an allowance is a LAFHA, we must consider Draft Taxation Ruling TR 2021/D1 Income tax and fringe benefits tax: employees: accommodation and food and drink expenses, travel allowances, and living-away-from-home allowances.

Under TR 2021/D1, paragraph 122 states it is first necessary to determine what expenditure the allowance is designed to cover or compensate the employee for and whether those expenses are deductible under section 8-1.

To be deductible under section 8-1 of the ITAA 1997, paragraph 15 states the expense must have a sufficiently close connection to the performance of the employment duties and activities through which the employee earns income. It will not be enough to show some general link or causal connection between the expenditure and the production of income. Under paragraph 23 and 25, the occasion of the outgoing on accommodation and food and drink must be found in the employee's income producing activities, rather than because the employee:

•               lives far away from where they gain or produce their assessable income (i.e. due to their personal circumstances)

•               is living at a location

•               incurs the expenses as a result of relocating from their usual residence.

Paragraph 13 provides such expenses are 'living expenses' and are not deductible under section 8-1 of the ITAA 1997 because they are not incurred in performing an employee's income-producing activities and are also private or domestic in nature.

Similarly, under paragraph 10, costs incurred by an employee to maintain their normal residence and in consuming food and drink to go about their daily activities are not deductible.They are living expenses.They are 'preliminary to the work' and are not incurred in performing the work activities. They are also of a private or domestic nature.

However, where an employee travels and stays away from their usual residence overnight in the course of performing their income producing activities and incurs accommodation and food and drink expenses, paragraph 11 provides that these expenses will generally be deductible under section 8-1 of the ITAA 1997.

Connection to employment duties and activities

The requirement for there to be a connection between the expense and an employee's duties and activities, is supported by Taxation Ruling TR 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997 which provides:

13. The pivotal element of section 8-1 for work expenses is the requirement that expenses be incurred 'in gaining or producing assessable income'. The High Court majority in Payne said it is well established that these words are to be understood as meaning incurred 'in the course of' gaining or producing assessable income, and do not convey the meaning of outgoings incurred 'in connection with' or 'for the purpose' of deriving assessable income.

...

22. The requirement that expenses be incurred in the course of producing assessable income means that it is not enough to show only that there is some general link or causal connection between expenditure and the production of income. The expenditure must have a sufficiently close connection to performance of the employment duties and activities through which the employee earns income.

The scope of an employee's income producing activities is a question of fact and degree and is not confined to the day-to-day activities performed by the employee. It requires consideration of the employment contract along with:

•               the duties to be observed, and

•               the tasks to be performed

by the employee (which may extend beyond what is contained in the employment contract).

As Hill J said in The Roads and Traffic Authority of New South Wales v Commissioner of Taxation [1993] FCA 445 (RTA case):

On the evidence, employees are sent to work away from their home generally for short periods of time and are told that they may be required to move from place to place. They are not told that their employment in a particular place is indefinite. In the circumstances, there seems little scope for an inference that living at a camp or caravan, as the case may be, is a choice made by the employee. Rather, it is an incident of the employment of that employee and if the cost were incurred by him would be a deductible outgoing under s. 51...

Therefore, if an employee is required by their employer, as an incident of their employment (i.e. the duties of their employment) to stay away from their usual residence overnight for relatively short periods of time, the employee will be travelling on work and the occasion of the outgoing on accommodation and food and drink will generally be found in the employee's income producing activities.

In this case, the following factors support a conclusion that overnight travel is an incident of an employee's employment:

•         The employee's position is a field-based role.

•         Employees must be responsive to work needs, may be required to change their work location on short notice and can be based in a number of different locations during a year.

•         The duration that an employee is based in a location depends on circumstances specific to the project(s), program of works and/or review required in that area.

•         The need for employees to be based in a location that is a significant distance from their permanent home arises due to the vast geographic areas of some districts in which employees work.

•         It would be unreasonable for employees to commute daily between their usual residence and these work locations.

The employee does not incur the expenses due to their personal circumstances

Living expenses include expenses incurred by an employee where, due to their personal circumstances, they live far away from where they gain or produce their assessable income.

Such expenses are incurred because the employee's personal circumstances are such that they keep their usual residence, rather than relocate. The occasion of the outgoing for accommodation and food and drink is not found in the employee's income-producing activities, meaning that these expenses are not incurred in the course of gaining or producing the employee's assessable income. They are private and domestic in nature.

In this case, the employee's expenses are not incurred because of their personal circumstances. The employees do not choose to work in remote locations or small communities far from where they reside. As outlined above, their work requires them to be based in these locations to undertake their duties of employment. As such, their expenses would be an incident of their employment and incurred in the course of producing or gaining their assessable income.

The employee does not incur the expenses because they are living at a location or have relocated

Where an employee is living at a location away from their usual residence or have relocated, their accommodation and food and drink expenses are living expenses and will not be deductible even if the employee is living at that location due to their employment.

This is because the location at which the employee works has become their new regular place of work and the accommodation and food and drink expenses are not an incident of their income-earning activity. Rather, the employee's personal circumstances are such that their usual residence is not located near their new workplace. Consequently, the employee is living at a location away from their usual residence and their accommodation and food and drink expenses will not be deductible.

Paragraphs 38 to 72 of TR 2021/D1 further explain when an employee will not be 'travelling on work' but 'living at a location' away from their usual residence (including when they have relocated). Where an employee is living at a location away from their usual residence, their accommodation and food and drink expenses are living expensesand will not be deductible even if the employee is living at that location due to their employment.

The 'length of period away' means the overall period of time the employee spends living at a particular location for work. Where an employee is living at one location for work for an extended period, that period is not broken by short trips they take from that location, for example travelling back to their usual residence on weekends or when 'travelling on work' from that location. Generally, the longer an employee spends away from their usual residence for work, the more likely the employee is living at the location.

Paragraph 42 of TR 2021/D1 provides that the following factors would support a characterisation of an employee as living at a location away from their usual residence:

•         there is a change in the employee's regular place of work

•         the length of the overall period the employee will be away from their usual residence is a relatively long one

•         the nature of the accommodation is such that it becomes their usual residence

•         whether the employee is, or can be, accompanied by family or visited by family and friends.

Paragraph 44 of TR 2021/D1 provides, 'all of the[se] factors ... should be considered and no single factor is necessarily decisive. The weight given to each factor will vary depending on the individual circumstances.'

There is no information to suggest the employees have relocated to the locations in which they are based.

That is, the employees:

•         are not carrying on their own business.

•         work in a field-based role and have no permanent work location (their work location is wherever the project works are occurring in the relevant geographic area).

•         work in remote locations (though their accommodation may be in a town centre).

•         are required, as an incident of their employment, by their employer and for the purposes of the employer to live close by their work location for relatively short periods of time. (No question arises of their choosing to live in these places.)

•         may be required to change work locations at short notice.

•         have no or limited choice about the work location at which they work.

•         have a usual residence away from the work location in which they live when not at the work location.

•         have no or limited choice as to the location of the accommodation provided (and the accommodation may be shared).

•         are only staying overnight in the accommodation because it would be impractical to expect the employees to travel back-and-forth between their usual residence and the work location each workday.

•         do not spend a significant amount of leisure or recreation time in the accommodation such that it becomes their home.

•         travel home at weekends and do not remain at the work location.

•         are unaccompanied by friends and family (though they are not prevented from being visited by friends or family, however, any costs will be borne by the employees), and

•         cannot reasonably be considered to have made the provided accommodation their home.

Conclusion

Having regard to the above, the employees' expenses would be an incident of their employment, not incurred due to their personal circumstances or because they are living in a location. Therefore, their expenses would be deductible expenses under section 8-1 of the ITAA 1997. Accordingly, the allowance paid to the employees covered by this Question is not a LAFHA fringe benefit under subsection 30(1) of the FBTAA.

Question 2

Are allowances paid to an employee who is required by their employer to be based a significant distance away from their usual place of residence to perform duties in remote locations or other small communities (where self-contained home-like accommodation is provided) for a period between 3 to 12 months assessed under living-away-from-home allowance requirements in Division 7 of the FBTAA?

No. The allowances are not a LAFHA benefit under subsection 30(1) of the FBTAA.

As paragraph 50 of TR 2021/D1 aptly provides in relation to the employees' circumstances, being employees who are frequently required to work at multiple locations away from their usual residence:

Just because an employee is away from their usual residence for an extended period does not necessarily mean that they are living at a location away from their usual residence. If the employment requires ongoing travel to multiple locations the employee may not be in any location long enough to be regarded as living at a location.

In any case, the facts and reasoning outlined at Question 1 also applies to employees covered by this Question. Only the duration of an employee's project is longer.

Question 3

Are allowances paid to an employee who is required by their employer to be based a significant distance away from their usual place of residence to perform duties in remote locations or other small communities (where self-contained home-like accommodation is provided) for a period that exceeds 12 months assessed under living-away-from-home allowance requirements in Division 7 of the FBTAA?

No. The allowances are not a LAFHA benefit under subsection 30(1) of the FBTAA.

The facts and reasoning outlined at Question 1 also applies to employees covered by this Question. Only the duration of an employee's project is longer.

Question 4

If allowances paid to the employee referred to in questions 1 to 3 are not assessed under Division 7 of the FBTAA, are the allowances subject to PAYG withholding and/or payment summary reporting obligations?

No. The employer is not required to withhold from the allowance it pays the employees referred to in Questions 1 to 3 or include it on their payment summaries or income statements.

An allowance is subject to PAYG withholding obligations where:

•         it is a travel allowance and not a LAFHA fringe benefit, and

•         it is a travel allowance which does not meet the relevant exceptions.

This is because:

•         travel allowance is included in an employee's assessable income under section 15-2 of the ITAA 1997, whereas

•         LAFHA is a fringe benefit which is non-assessable non-exempt income in the hands of the employee and may give rise to FBT which is paid by the employer (see subsection 6-15(3) of the ITAA 1997 and section 23L of the ITAA 1936).

Subsection 900-30(3) of the ITAA 1997 states that a 'travel allowance' is an allowance an employer pays to an employee to cover losses or outgoings that:

•         are incurred for travel away from the employee's ordinary residence that is undertaken in the course of their duties as an employee, and

•         are for accommodation, food or drink, or are incidental to travel.

Paragraphs 53 to 62 of Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses provides the following factors to consider when determining if an allowance paid to an employee is a travel allowance:

•         the employee is sleeping away from home;

•         the allowance must cover costs of accommodation, food or drink, or incidentals;

•         the travel must cover specific journeys;

•         the allowance must be paid as an allowance and not folded-in as part of normal salary/wages; and

•         the allowance must be a bona fide travel allowance.

Paragraph 60 of TR 2004/6 states that an allowance will be a bona fide travel allowance where the allowance paid is an amount reasonably expected to cover accommodation, meals and other expenses incidental to the travel.

Having regard to the definition of a 'travel allowance' in section 900-30 of the ITAA 1997 and TR 2004/6, and the circumstances in which the allowance is provided to the employees in circumstances covered by Questions 1 to 3, the allowance is a 'travel allowance' and all of the criteria in paragraphs 53 to 62 of TR 2004/6 apply.

An allowance is not subject to PAYG withholding if it is within the scope of PAYGW Variation 38, which applies from 1 July 2015 and states:

There is no requirement to withhold an amount from allowances as described below, provided:

•         the payee is expected to incur expenses that may be able to be claimed as a tax deduction at least equal to the amount of the allowance

•         the amount and nature of the allowance is shown separately in the accounting records of the payer

Allowances subject to PAYGW Variation 38 include:

5. Domestic or overseas travel allowance (excluding overseas accommodation allowance) involving an overnight absence from the payee's ordinary place of residence up to reasonable allowances amount published in the annual ATO Ruling.

Based on the information provided by the employer, the allowance it pays to the employees covered by Questions 1 to 3 is a travel allowance within the scope of Variation 38.

Therefore, the employer is not required to withhold from the travel allowance it pays these employees or include it on their payment summaries or income statements.

Question 5

Are allowances paid to an employee who is required by their employer to be based a significant distance away from their usual place of residence to perform duties in remote locations or other small communities (where rudimentary accommodation is provided) for a period up to 12 months assessed under living-away-from-home allowance requirements in Division 7 of the FBTAA?

No. The allowance paid to an employee covered by this Question is not a LAFHA benefit under subsection 30(1) of the FBTAA.

This issue differs from Questions 1 and 2 because the nature of the accommodation provided to employees is rudimentary accommodation.

While the accommodation in which the employees covered by this issue is different, the facts and reasoning outlined at Question 1 also applies to employees covered by this Question.

In particular, when all of the factors in paragraph 42 of TR 2021/D1 are considered and weighed, see the dot points relating to employees in Question 1 above, the employees are, on balance, in similar circumstances to the workers in the RTA case (except the employees do not camp). As a result, Hill J's conclusion in that case, that the workers' expenses would be deductible to them and so the camping allowance paid to those workers was not a LAFHA fringe benefit under subsection 30(1) of the FBTAA, also applies to the allowance paid to the employees.

Therefore, as the employees' expenses would be deductible expenses under section 8-1 of the ITAA 1997, the allowance paid to employees covered by this Question is not a LAFHA fringe benefit under subsection 30(1) of the FBTAA.

Question 6

Are allowances paid to an employee who is required by their employer to be based a significant distance away from their usual place of residence to perform duties in remote locations or other small communities (where rudimentary accommodation is provided) for a period that exceeds 12 months assessed under living-away-from-home allowance requirements in Division 7 of the FBTAA?

No. The facts and reasoning outlined at Question 5 also applies here. Only the length of their project is longer.

Question 7

If allowances paid to an employee referred to in questions 5 and/or 6 are not assessed under Division 7 of the FBTAA, are the allowances subject to PAYG withholding and/or payment summary reporting obligations?

No. Refer to the reasons given in answer to Question 4. For the reasons given there, the employer is also not required to withhold from the allowance it pays to the employees referred to in Questions 5 and 6 or include it on their payment summaries or income statements.

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