Edited version of private advice

Authorisation Number: 1052248154543

Date of advice: 3 May 2024

Ruling

Subject: Fringe benefits tax

Question 1

Would the Commissioner confirm whether the Home Base Allowance (payable while the employee is located at the Operational Base) is a 'travel allowance' giving rise to related Pay As You Go Withholding (PAYGW) obligations for the Employer?

Answer

No.

Question 2

If the Commissioner's answer to Question 1 is 'No', will the Commissioner confirm that the Home Base Allowance is a Living Away From Home Allowance (LAFHA) fringe benefit under section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 3

Will the Commissioner's response to Questions 1 and 2 be the same if the tour is structured as XX days on and XX days off?

Answer

Yes.

Question 4

The ATO has ruled on the Fringe Benefits Tax (FBT) and PAYGW implications of a proposed change to the relevant Enterprise Agreements.

Question 5

Will the entire amount of the Commuting Allowance (payable for travel to or from the employee's main residence to the Operational Base) be subject to PAYGW under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

Yes.

Question 6

The ATO has ruled on the FBT and PAYGW implications of a proposed change to the relevant Enterprise Agreements.

Question 7

Will the Away Location Allowance (payable while the employee is located at an Operational Base other than their main Operational Base,for example, for training or as needs basis) be subject to PAYGW under section 12-35 of Schedule 1 to the TAA?

Answer

Yes.

Question 8

The ATO has ruled on the FBT and PAYGW implications of a proposed change to the relevant Enterprise Agreements.

This ruling applies for the following periods:

FBT year ended March 20XX

FBT year ending March 20XX

FBT year ending March 20XX

FBT year ending March 20XX

The scheme commenced on:

1 April 20XX

Relevant facts and circumstances

The Employer is an Australian private company and is an Australian tax resident within the meaning of section 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The Employer is a subsidiary of Z, a resident taxpayer of Foreign Country A.

The Employer engages certain employees to provide their services. The Employer refers to these employees as being 'Fly-In Fly-Out (FIFO) employees'.

The place of employment or 'Home Base' of an employee is the location specified in their employment contract or letter of offer, and is the Operational Base (project site).

All FIFO employees have permanent homes elsewhere (that is, at their place of residence) and they regularly return to their permanent homes between their 'tours'.

FIFO employees fly between their place of residence and their allocated Home Base at the Employer's expense.

Whilst on a 'tour', FIFO employees are provided residential style accommodation (for example, employees are provided living/kitchen spaces separate to their bedroom space) at their Home Base. These premises are shared with other FIFO employees and regularly used by the different personnel who are on rotating shift.

The living arrangements allow FIFO employees to self-cater. They have basic furnishing and limited cooking and storage facilities, for example a full -sized fridge/freezer, washing machine and cooking utensils.

Three of the allowances paid by the Employer to FIFO employees are the subject of this ruling:

1. Home Base Allowance

The Home Base Allowance is paid for food, drink and incidentals while employees are at their Home Base (that is, while the FIFO employee is located where they undertake their duties of employment).

The Home Base Allowance is not provided to any employees who live on premises (that is, employees other than FIFO employees), although other assistance may be provided to those resident employees.

2. Commuting Allowance

The Commuting Allowance is an allowance paid to FIFO employees for food and drink while they are travelling to, and returning from, their Home Base to their usual place of residence.

In addition to the Commuting Allowance, a FIFO employee's rostered 'tour' includes a day of travel for which they are paid salary or wages to compensate the employee for the shared burden of travel to the Operational Base.

At all times during all travelling periods, the Employer requires its employees to comply with its code of conduct policy.

FIFO employees return to their usual place of residence as soon as practicable after the 'on' period of the relevant tour.

Employees are not provided the Home Base Allowance, Commuting Allowance or Away Location Allowance where they are otherwise provided with food or drink.

3. Away Location Allowance

The Away Location Allowance is paid to FIFO employees for food and drink while they are touring to an Away Location.

FIFO employees are generally required to travel to their Home Base to undertake their 'tour'. However, they may from time to time be required to travel to an Away Location for X Training for a period of 1 to 2 weeks, other operational training requirements or to work at another base on an as-needs basis for a normal tour duration.

Where a FIFO employee is required at an Away Location for more than 1 or 2 tours, upon agreement from the employee, the Employer will change the employee's new Home Base for future tours. FIFO employees generally continue to receive residential style accommodation at an Away Location, unless they are at X Training or training at the head office when it will be hotel style accommodation for these short duration trips.

Assumption

The Commissioner is asked to assume for the purposes of this ruling application that all relevant documentation to substantiate the relevant costs which are the subject of the allowances is maintained as required by the FBTAA and the Income Tax Assessment Act 1997 (ITAA 1997) and other relevant legislation.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 30(1)

Fringe Benefits Tax Assessment Act 1986 section 31A

Fringe Benefits Tax Assessment Act 1986 subsection 31A(1)(a)

Fringe Benefits Tax Assessment Act 1986 subsection 31A(1)(b)

Fringe Benefits Tax Assessment Act 1986 subsection 31A(1)(c)

Fringe Benefits Tax Assessment Act 1986 subsection 31A(2)(a)

Fringe Benefits Tax Assessment Act 1986 subsection 31A(2)(b)

Fringe Benefits Tax Assessment Act 1986 subsection 31E(c)

Fringe Benefits Tax Assessment Act 1986 subsection 31E(d)

Fringe Benefits Tax Assessment Act 1986 subparagraph 31E(a)(1)

Fringe Benefits Tax Assessment Act 1986 section 63

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 section 8

Income Tax Assessment Act 1997 subsection 900-30(2)

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

Income Tax Assessment Act 1997 section 900-50

Taxation Administration Act 1953 Division 359 in Schedule 1

Reasons for decision

This is to explain how we reached our decision. This is not part of the private ruling.

Issue 1

Fringe Benefits Tax

Question 1

Would the Commissioner confirm whether the Home Base Allowance (payable while the employee is located at the Operational Base) is a 'travel allowance' giving rise to related PAYGW obligations for the Employer?

Summary

The Home Base Allowance (payable while the employee is located at the Operational Base) is not considered to be a 'travel allowance' and therefore, it does not give rise to related PAYGW obligations for the Employer.

Detailed reasoning

The employees are paid an allowance called the 'Home Base Allowance' when working at the Operational Base.

The character of this allowance is determined based on the facts and circumstances.

When an allowance is paid by an employer to cover accommodation and food and drink expenses, it is necessary to determine whether that allowance is a travel allowance or a living-away-from-home allowance (LAFHA) as each is subject to a different tax treatment.

A travel allowance is included in an employee's assessable income, whereas a LAFHA is a fringe benefit which is non-assessable non-exempt income in the hands of an employee and may give rise to FBT which is paid by the employer.

A travel allowance is defined in subsection 900-30(3) of the ITAA 1997, as an allowance your employer pays or is to pay to you to cover losses or outgoings:

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

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

An allowance paid to employees may relate to tax deductible expenses. An employee's expense relating to food or drink will only be deductible under section 8-1 of the ITAA 1997 to the extent that:

(a)          they incur the expense in gaining or producing their assessable income;

(b)          the expense is not of a capital, private or domestic nature;

(c)           the expense is not Incurred in gaining or producing exempt income or non-assessable non-exempt income; and

(d)          a provision of the Tax law does not prevent it from being deducted.

Broadly, living expenses (including any food or accommodation component of such expenses) are not ordinarily taken to be incurred in performing an employee's income-producing activities (even where employees are required to live away from home in performing their duties). As such, living expenses are generally considered to be private or domestic in nature and generally non-deductible.[1]

In contrast, where an employee incurs accommodation or food and drink expenses, such expenses may be deductible where they have a sufficiently close connection to the performance of their duties and activities through which the employee earns income.[2]

First limb - covers losses or outgoings an employee incurred for travel away from their ordinary residence in the course of their duties as an employee

Given the nature of FIFO employees' regular and rotational work pattern, and the remoteness of the Employer's work sites, FIFO employees are required to live at their Home Base (Operational Base) during 'on' days for the purposes of performing their duties, as it is not feasible for employees to commute to and from the Home Base on a daily basis.

As such, when undertaking a tour at the Home Base, FIFO employees are not travelling away from their ordinary residence in the course of their duties as an employee of the Employer, therefore they are not travelling 'on' work. Rather, FIFO employees are required to live at their Home Base for the duration of the 'on' part of their tour to put them in the position to perform their duties.

Expenses incurred while FIFO employees reside at their Home Base are non-deductible as they are private living expenses, rather than being expenses incurred on business in relation to the performance of the employees' duties.

As such, the Home Base Allowance does not satisfy the first requirement for characterisation as a travel allowance.

Second limb - covers losses or outgoings incurred for accommodation or for food or drink expenses or other expenses incidental to the travel

The Home Base Allowance covers expenses for food, drink and incidentals. However, for the reasons outlined above, the FIFO employees are not travelling 'on' work and therefore these expenses are not incidental to any travel undertaken by the employees in the course of their duties.

As such, the Home Base Allowance does not satisfy the second requirement for characterisation as a travel allowances, as it covers living expenses.

Application to your circumstances

The Home Base Allowance will only be paid to FIFO employees. These are employees who fly between their place of residence and their allocated Home Base. Whilst they are on tour and rostered on, they will be required to live away from their normal residence in order to perform their employment duties. The Home Base Allowance will be paid to compensate for food, drink and incidentals while employees are living at their Home Base.

Based on the facts and circumstances of the FIFO workers, the Home Base Allowance is not a travel allowance. The allowance will not be paid for the purpose of covering accommodation and food and drink expenses and incidental expenses incurred by an employee when they are travelling on work, in the course of their duties as an employee. Rather, the Operational Base is the employee's regular place of work and the expenses incurred are non-deductible living expenses.

The Home Base Allowance (payable while the employee is located at the Operational Base) is not considered to be a 'travel allowance' and therefore, it will not give rise to related PAYGW obligations for the Employer.

Question 2

If the Commissioner's answer to Question 1 is 'No' will the Commissioner confirm that the Home Base Allowance is a LAFHA fringe benefit under section 30 of the FBTAA?

Summary

Yes, the Home Base Allowance is a LAFHA fringe benefit under section 30 of the FBTAA.

Detailed reasoning

The employees are paid an allowance called the 'Home Base Allowance' when working at the Operational Base. The character of this allowance is determined based on the facts and circumstances.

Relevant law

A 'fringe benefit' is defined in subsection 136(1) of the FBTAA, which holds that the following conditions must be satisfied:

1.            A benefit is provided at any time during the year of tax.

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

3.            The benefit is provided by

(i)            their employer; or

(ii)           an associate of the employer; or

(iii)         a third party other than the employer or an associate under an arrangement between the employer or associate of the employer and the third party; or

(iv)         a third party other than the employer or an associate of the employer, if the employer or an associate of the employer

                                             i.                participates in or facilitates the provision or receipt of the benefit; or

                                            ii.                participates in, facilitates or promotes a scheme or plan involving the provision of the benefit; and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so.

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

5.            The benefit is not one that is specifically excluded as per paragraphs (f) to (s) of the definition of a fringe benefit in subsection 136(1) of the FBTAA.

Subsection 30(1) of the FBTAA sets out the circumstances in which an allowance paid by an employer to an employee will qualify as a LAFHA benefit, and states where:

a)            at a particular time, in respect of the employment of an 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.

In summary, there are three conditions that must be met for a payment to an employee to be considered a LAFHA benefit:

1.            The payment is an allowance an employer pays an employee in respect of the employment of that employee.

2.            The duties of their employment require the employee to live away from their normal residence.

3.            The whole or part of the allowance is in the nature of compensation to the employee 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.

Each of these conditions is considered further below.

1.            Is the payment an allowance paid to employees in respect of their employment?

A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance.[3]

In your situation, the Home Base Allowance is an allowance because:

•                     the payments you make are definite predetermined amounts to cover estimated expenses regardless of whether the employees incur the expected expense;

•                     the employees have the discretion whether or not to expend the amount paid to them.

An 'employee' is defined in subsection 136(1) of the FBTAA to include a current, future and former employee. Subsection 136(1) of the FBTAA defines a 'current employee' to mean 'a person who receives, or is entitled to receive, salary or wages'.

'Salary or wages', as defined in subsection 136(1) of the FBTAA, means payments from which an amount must be withheld under section 12-35 of Schedule 1 to the TAA.

Based on the information provided, FIFO employees meet the definition of 'current employee' because they receive salary or wages from you from which an amount must be withheld.

In considering whether a benefit is provided to an employee in respect of their employment, subsection 136(1) of the FBTAA defines 'in respect of', in relation to the employment of an employee, to include 'by reason of, by virtue of, or for or in relation directly or indirectly to, that employment'.

In J & G Knowles v Commissioner of Taxation [2000] FCA 196, 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'.

In this situation, payment of the Home Base Allowance to the employees is sufficiently and materially connected to the employment of the respective employees, and as such, would be considered to have been provided 'in respect of' their employment.

Therefore, payment of the allowances to the employees was made in respect of their employment, thus satisfying the first condition (paragraph (a) of subsection 30(1) of the FBTAA).

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

'Normal residence'

'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 separate 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'...'.

'Living away from usual residence'

The FBTAA does not provide a definition of the term 'living away from usual residence'.

However, the Commissioner's view on the term 'living away from usual residence' is outlined at paragraphs 38-61 of Taxation Ruling TR 2021/4: Income tax and fringe benefits tax: employees: accommodation and food and drink expenses travel allowances and living-away-from-home allowances.

Paragraph 42 of TR 2021/4 provides guidance for determining whether an employee is living at a location away from their usual residence and states:

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.

Each of these factors is considered in further detail below.

Change in the employee's regular place of work

Paragraph 45 of TR 2021/4 outlines that where there is a change in the employee's regular place of work and the employee incurs accommodation and meal expenses to be closer to their new regular place of work, the employee is more likely to be living at that new location away from their usual residence.

Conversely, where there is no change in the employee's regular place of work and the employee incurs accommodation and food and drink expenses when they temporarily attend and stay overnight at another location in the course of carrying out their income-producing activities, the employee will not be living at the location they visit and work at temporarily (paragraph 46 of TR 2021/4).

The Commissioner's view of the concept of 'regular place of work' is outlined in paragraphs 24 to 38 of TR 2021/1: Income tax: when are deductions allowed for employees' transport expenses? which states:

...

25. Most employees have a regular place of work, being a usual or normal place where the employee starts and finishes their work duties with a particular employer.

26. In most cases, identifying an employee's regular place of work is clear. In circumstances where it isn't clear, it may be necessary to consider in more depth the contract of employment, customary practice, the nature of the work duties, where these duties commence and at what point in time the employee is under the direction and control of their employer in order to determine where the employee's regular place of work is.

...

32. ...In situations where it is difficult to conclude whether a second or subsequent place of work is also a regular place of work, an actual or anticipated duration of three months or more at the location would usually be sufficient for the location to amount to a regular place of work.

In this case, duties of employment of the Employer's employees are being performed at the same work site as stated on their letter of offer and/or employment contract. As such the Operational Base is the employee's regular place of work.

The length of the period away

Paragraph 48 of TR 2021/4 explains that 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.

In this case, a 'tour' for FIFO employees currently includes both their rostered days on as well as their rostered days off. For example, a 'tour' might be XX days and include XX days on and XX days off.

Paragraph 49 of TR 2021/4 explains that the longer an employee spends away from their usual residence for work, the more likely the employee is living at the location.

The nature of the accommodation

Paragraphs 56 to 58 of TR 2021/4 explains that the nature of an employee's accommodation is relevant but does not determine whether the employee is living at a location away from their usual residence.

Paragraph 58 of TR 2021/4 notes that generally, where an employee works away from home for a considerable period and, for that period, stays in accommodation generally used for longer-term accommodation (such as a house, unit or apartment, or caravan), this would support a view that they are living at a location away from their usual residence.

Whilst on 'tour', FIFO employees are provided with residential style accommodation at their Home Base. These premises are shared with other FIFO employees and regularly used by the different personnel who are on rotating shift. The living arrangements allow FIFO employees to self-cater. They have basic furnishing and limited cooking and storage facilities, for example a full-sized fridge/freezer, washing machine and cooking utensils.

Conclusion

In weighing up the factors outlined at paragraph 42 of TR 2021/4, we have concluded that the duties of the FIFO employees' employment require them to live away from their normal residence. As such, the second condition in subsection 30(1) of the FBTAA is satisfied.

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

Subsection 136(1) of the FBTAA provides the definition of 'deductible expenses' as follows:

deductible expenses, in relation to an allowance paid to an employee, means expenses incurred by the employee in respect of which a deduction is allowable to the employee under section 8-1 of the Income Tax Assessment Act 1997 (ignoring Divisions 28, 32 and 900 of that Act).

According to section 8-1 of the ITAA 1997, you can deduct a loss or outgoing if it is incurred in producing your assessable income except where the outgoing is of a capital, private or domestic nature.

Paragraph 7 of TR 2021/4 outlines that the term 'incurred in gaining or producing assessable income' means incurred 'in the course of gaining or producing assessable income'. For an expense to be incurred in gaining or producing assessable income it is both sufficient and necessary that the occasion of the expense should be found in whatever is productive of assessable income.

Paragraph 8 of TR 2021/4 states that when determining what is productive of an employee's assessable income, consideration should be given to the scope of the employee's income-producing activities.

Paragraphs 9 and 10 of TR 2021/4 differentiate 'living expenses' and expenses incurred while 'travelling on work':

9. Accommodation and food and drink expenses are ordinarily private or domestic in nature and are generally not deductible under section 8-1. This includes the costs an employee incurs to maintain their usual residence and of consuming food and drink to go about their daily activities. For the purposes of this Ruling, such expenses will be referred to as 'living expenses.

10. 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, these expenses will generally be deductible under section 8-1. For the purposes of this Ruling, an employee who stays away from their usual residence overnight in the course of performing their income-producing activities will be referred to as 'travelling on work'.

Paragraph 24 of TR 2021/4 further outlines the relevant factors for determining whether an employee is travelling on work versus living expenses:

24. If any of the following factors apply, the employee will not be travelling on work and the accommodation and food, and drink expenses incurred will be living expenses:

•                     The expenses are incurred because the employee's personal circumstances are such that they live far away from where they gain or produce their assessable income

•                     The employee incurs the expenses because they are living at a location

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

In this case, the expenses the employees incur because they are living at a location that is away from their usual residence for work purposes are considered living expenses and are therefore not tax deductible.

As a result, it is concluded that the allowances are paid to compensate for additional 'non-deductible' expenses and therefore the third condition in subsection 30(1) of the FBTAA is satisfied.

Conclusion

As all 3 conditions outlined in subsection 30(1) of the FBTAA and the requirements of the subsection 136(1) definition of a 'fringe benefit' have been met, the 'Home Base Allowance' that the Employer is paying to the FIFO employees is considered to be a LAFHA fringe benefit.

Question 3

Will the Commissioner's response to Questions 1 and 2 be the same if the tour is structured as XX days on and XX days off?

Summary

Yes, the Home Base Allowance remains a LAFHA fringe benefit under section 30 of the FBTAA.

Detailed reasoning

FIFO employees are described as being on a 'tour'. A 'tour' for FIFO employees currently includes both their rostered days on as well as their rostered days off. For example, a 'tour' might be XX days and include XX days on and XX days off. As part the current ongoing Enterprise Agreement negotiations, there is a proposal for Tour C, which would be XX days on and XX days off.

The place of employment or 'Home Base' of an employee is the location specified in their employment contract or letter of offer, all FIFO employees have permanent homes elsewhere and return to their permanent homes when not rostered on.

Therefore, this question is evaluating the impact of this proposed restructuring of the FIFO employee's 'tour'.

Relevance of Fly-in-Fly-out to LAFHA

LAFHAs are concessionally taxed if the employee satisfies the requirements of section 31A of the FBTAA:

Section 31A

This section applies to a 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)           the requirement that the employee has residential accommodation at or near his or her usual place of employment;

(b)           section 31E (about extra requirements for these employees);

(c)           section 31F (about declarations).

Section 31A(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.

Section 31E of the FBTAA sets out the Fly-In Fly-Out And Drive-In Drive-Out requirements, and states:

31(E) The employee satisfies this section if:

(a)           the employee, on a regular and rotational basis:

(i)            works for a number of days and has a number of days off (but not the same days in consecutive weeks); and

(ii)           on completion of the working days, travels from his or her usual place of employment to his or her normal residence and, on completion of the days off, returns to that usual place of employment; and

(b)           the basis of work described in paragraph (a) is customary for employees performing similar duties in that industry; and

(c)           it would be unreasonable to expect the employee to travel on a daily basis on work days between:

(i)            his or her usual place of employment; and

(ii)           his or her normal residence; having regard to the location of those places; and

(d)           it is reasonable to expect that the employee will resume living in his or her normal residence when the duties of that employment no longer require him or her to live away from it.

a) Regular and rotational

The employees who are working for the Employer will continue to work on a regular and rotational basis as required by section 31E. As the FBTAA does not define 'regular and rotational basis', the ordinary meanings of the terms are used in the context of the FBTAA.

The Macquarie Dictionary defines 'regular' as 'usual; normal; customary; conforming in form or arrangement; recurring at fixed times; periodic; characterised by fixed principle; uniform procedure; adhering to rule or procedure'. The term 'rotational' is defined in the Macquarie Dictionary as 'regularly recurring succession'. Further, Cambridge Dictionaries Online defines 'rotational' in the employment context to mean 'shift work on a rotational basis' and 'relating to a system in which the person who does a particular job is regularly changed'.

Subparagraph 31E(a)(i) is further defined under the Tax Law Amendment (2012 Measure No.4) and its corresponding Explanatory Memorandum. It states that 'the employee is considered to be working on a fly-in fly-out or drive-in drive-out basis when on a regular and rotational basis, the employee works for a number of days and has a number of days off which are not the same days in consecutive weeks, such as a standard five-day working week and weekend'.

Therefore, as both the rostered 'tours' and proposed rostered 'tours' indicate, the employees do not work the same days in consecutive weeks thus satisfying the requirements set out under subparagraph 31E(a)(i) and as the employees return to their normal residence after their rostered shift the requirements of subparagraph 31E(a)(ii) are satisfied.

b) Industry custom

Taxation Determination TD 94/97 Fringe benefits tax: what does the phrase 'customary for employers in the industry' mean in relation to the provision of fringe benefits to employee? explains:

2. A benefit will be accepted as being customary where "it is normal or common for employees of that class or job description in that industry to be provided with the same or similar benefits. It is not necessary that all or even the majority of employees in the industry receive the benefit".

3. In defining the employer's industry, this Office will accept categorisation based on any recognised industry classification system. Examples of these are the industry codes for business income used by this Office (listed in the company income tax return instructions), and Australian and New Zealand Standard Industrial Classification (ANZSIC) codes.

It is established that it is common for employees performing similar duties across a range of industries to operate under a FIFO arrangement in scenarios where the employment duties are required to be performed in a remote location. This satisfies the requirements under subsection 31E(b).

c) Unreasonable to travel on a daily basis

From the background facts presented, it would be unsafe and unreasonable to expect the Employer's employees to travel daily to their Operational Bases from their normal residence given the remote location of the usual place of employment and the hazardous conditions that are associated with the journey. Subsection 31E(c) would therefore be satisfied.

d) Will return to usual place of residence

The Employer's employees maintain a residence away from the usual place of employment and are not permitted to reside permanently at their Operational Base. Upon completion of the 'on' periods of their rostered 'tour', FIFO employees are transported back to the airport closest to their normal residence. Therefore, the employee will resume living at their usual place of residence when the duties no longer require them living at the site. This would satisfy subsection 31E(d) of the FBTAA.

Conclusion

The requirements to be a LAFHA fringe benefit under section 30 of the FBTAA are still met if the period of the 'tour' is changed. All the FIFO requirements listed under section 31E of the FBTAA are satisfied. Therefore, the employees will continue to be FIFO employees under the proposed arrangement.

Question 4

The ATO has ruled on the FBT and PAYGW implications of a proposed change to the relevant Enterprise Agreements.

Issue 2

Income Tax and PAYGW

Question 5

Will the entire amount of the Commuting Allowance (payable for travel between the employee's main residence and the Operational Base) be subject to PAYGW under section 12-35 of Schedule 1 to the TAA?

Summary

Yes, the entire amount of the Commuting Allowance paid by the Employer to its employees for travel between the employee's main residence and the Operational Base will be subject to PAYGW under section 12-35 of Schedule 1 to the TAA.

Detailed reasoning

FIFO employees' rostered 'tour' includes a day of travel for which they are paid salary or wages to compensate the employee for the shared burden of travel to the Operational Base. The employees are also paid a Commuting Allowance in respect of this travel day, being for travel from the employee's main residence to the Home Base (Operational Base or project site), and for travel from the Home Base to the employee's main residence.

Division 12 in Schedule 1 of the TAA outlines the situations where a paying entity is obliged to withhold part of an amount paid to another entity. The withheld amount is referred to as 'PAYG withholding' (PAYGW).

Section 12-35 of Schedule 1 to the TAA states (emphasis added):

An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

Pursuant to section 12-1 of Schedule 1 to the TAA, an entity is not required to withhold an amount under section 12-35 of Schedule 1 to the TAA from a payment where the payment constitutes exempt income; non-assessable non-exempt income; a LAFHA (as defined in subsection 136(1) of the FBTAA); an expense payment benefit (as defined in subsection 136(1) of the FBTAA); or a capped defined benefit income stream.

Section 15-2 of the ITAA 1997 provides that the assessable income of a taxpayer includes the value of all allowances, gratuities, compensations, benefits, bonuses and premiums provided to the taxpayer in respect of, or for or in relation directly or indirectly to, any employment of, or services rendered by, the taxpayer.

In considering whether the whole of the Commuting Allowance is to be included as part of an employee's assessable income under section 15-2 of the ITAA 1997, it is necessary to determine whether the payment of the Commuting Allowance is an 'allowance' or a 'reimbursement'. This is because an allowance and a reimbursement of expenses have different tax consequences. A reimbursement of expenses incurred by an employee may be the provision of a 'fringe benefit' (as defined in subsection 136(1) of the FBTAA) and chargeable to the employer; the corresponding fringe benefit would be excluded from the assessable income of the employee under the specific exclusion provided in section 23L of the Income Tax Assessment Act 1936 (ITAA 1936). However, an allowance paid by an employer to an employee to meet an employment-related expense will generally be included in assessable income under section 15-2 of the ITAA 1997 and then be subject to a claim for deduction under section 8-1 of the ITAA 1997.

Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement explains the difference between an allowance and a reimbursement for the purposes of determining whether a payment is a fringe benefit or whether that payment is assessable income.

Paragraph 2 of TR 92/15 describes an 'allowance' as:

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

'Reimbursement' is described at paragraph 3 of TR 92/15 as:

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

Paragraph 10 of TR 92/15 further provides the following in respect of the term 'reimbursement':

The ordinary meaning of the word "reimburse" implies that the recipient is to be compensated exactly for an expense already incurred although not necessarily disbursed. The definition of "reimburse" under subsection 136(1) of the FBTAA is wide enough to include payments made before expenses are incurred. However, whether payment is made before or after expenses are incurred by the recipient, it qualifies as a reimbursement when the provider considers the expense to be its own and the recipient incurs the expense on behalf of the provider. As a result, a requirement that the recipient vouch or substantiate expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. A further indication of a reimbursement is where the recipient is required to refund unexpended amounts to the provider.

In the current case, when employees are required to travel from their main residence to their Home Base and from their Home Base to their main residence, they are paid a fixed amount per day for meals, drinks and incidentals (the Commuting Allowance). This is a definite, pre-determined amount, and employees are not required to refund any unexpended amounts to the Employer. It is not intended that the Commuting Allowance compensate exactly for meal expenses that are incurred by the employees. Therefore, payment by the Employer to an employee of $XXX.00 per day is considered to constitute the payment of an allowance. The Commuting Allowance is not a reimbursement.

The payment of the Commuting Allowance to an employee is therefore considered to be an allowance that is assessable to the employee under section 15-2 of the ITAA 1997.

Generally, domestic or overseas travel expenditure is only deductible if the taxpayer satisfies the substantiation requirements in Division 900 of the ITAA 1997. Under the 'reasonable allowance' exception in Subdivision 900-B of the ITAA 1997, an employee may be allowed to deduct 'travel allowance expenses' without documentary evidence if the Commissioner considers the total amount claimed is reasonable.

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.

The employee's travel from their place of residence to their Home Base is not undertaken in the course of their employment duties. The duties of employment do not commence until arrival at the Home Base. As such, for the purposes of the Commuting Allowance (which is paid from residence to Home Base and from Home Base to residence), the employees are not travelling 'on' work as the travel is preliminary to commencing work duties. On this basis, the Commuting Allowance is not a 'travel allowance' as defined in subsection 900-30(3) of the ITAA 1997.

Therefore, as the Commuting Allowance is an allowance that is assessable under section 15-2 of the ITAA 1997, it will be subject to PAYGW pursuant to section 12-35 of Schedule 1 to the TAA.

None of the exceptions in section 12-1 of Schedule 1 to the TAA are considered to be applicable. In particular, having regard to the exception in section 12-1 for expense payment benefits and LAFHAs, the Commuting Allowance is not considered to be a 'fringe benefit' under the definition of that term in subsection 136(1) of the FBTAA. Paragraph (f) of the definition of a 'fringe benefit' provides that a fringe benefit is a benefit that does not include a payment of salary and wages. 'Salary and wages' is defined in subsection 136(1) of the FBTAA to mean 'a payment from which an amount must be withheld (even if the amount is not withheld) under a provision in Schedule 1 to the TAA listed in the table, to the extent that the payment is assessable income'.

Therefore, as the payment of the Commuting Allowance is one from which an amount must be withheld under section 12-35 of Schedule 1 to the TAA, the payment is 'salary and wages' and therefore excluded from the definition of a 'fringe benefit'. For completeness, we note the payment is not a LAFHA because it is paid in respect of travel and not because the employee is required to live away from home.

Conclusion

The Commuting Allowance is an allowance that is assessable to an employee under section 15-2 of the ITAA 1997. As such, the Commuting Allowance is subject to PAYGW under section 12-35 of Schedule 1 to the TAA.

Question 6

The ATO has ruled on the FBT and PAYGW implications of a proposed change to the relevant Enterprise Agreements.

Question 7

Will the Away Location Allowance (payable while the employee is located at an operational base other than their main operational base (e.g. for training or on an as needs basis) be subject to PAYGW under section 12-35 of Schedule 1 to the TAA?

Summary

Yes, the Away Location Allowance, is a travel allowance for the purposes of subsection 900-30(3) of the ITAA 1997 and as such is subject to PAYGW under section 12-35 of Schedule 1 to the TAA.

Detailed reasoning

An 'Away Location Allowance' is paid to FIFO employees when they are deployed to an Away Location Base (Secondary Operational Base) and during travel taken to and returning from the employee's main Operational Base to an Away Location Base.

Where a FIFO employee is required at an Away Location for more than 1 or 2 tours, upon agreement from the employee, the Employer will change the employee's new Home Base for future tours. FIFO employees generally continue to receive residential style accommodation at an Away Location, unless they are at X training or training at the head office when it will be hotel style accommodation for these short duration trips.

The PAYGW provisions are contained in Part 2-5 of Schedule 1 to the TAA. Section 12-35 of Schedule 1 to the TAA states:

12-35 An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

An allowance is subject to PAYGW obligations where:

1.            it is a travel allowance and not a LAFHA fringe benefit, and

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

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

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

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

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

It must be determined whether the travel fits within the duties of employment and is relevant to the practical demands of carrying out the work duties.

Taxation Ruling TR 2021/1: Income tax: when are deductions allowed for employees' transport expenses? sets out the Commissioner's view on travelling between work locations that do not include the employee's home, and travel between home and an alternative work location. It states:

39. In contrast to transport expenses between home and a regular place of work, expenses of travelling between work locations, neither of which is the employee's home, are ordinarily deductible provided that the employment is the occasion for the expenses. This includes different workplaces of the same employer, clients of the employer and other locations where the employee carries out their employment duties (for example, a court of law or at a client's work site). ...

40. Where, for example, an employee is required to travel from their regular place of work to attend a meeting at another office of their employer, the outgoings for transport for travel between the workplaces, occasioned by the employee's employment duties and the factors outlined in paragraphs 16 and 17 of this Ruling, support the characterisation of the transport expense being incurred in producing assessable income as:

•                     the travel fits within the duties of employment

•                     the travel is relevant to the practical demands of carrying out the employee's work duties

•                     the employer generally asks for the travel to be undertaken

•                     the travel would occur on work time, and

•                     the employee is under the direction and control of their employer.

Accordingly, the transport expenses would be deductible.

When FIFO employees are required to travel for operational training requirements from their main Operational Base to another Operational Base, they are therefore travelling between work locations. These work locations do not include the homes of the employee. Accordingly, these transport expenses would be deductible.

Where the nature of the employment requires an employee to travel away from home overnight, for purposes explained by their employment and not because of where they have chosen to live, the transport expenses incurred in travelling to the alternative work location will be incurred in the course of gaining or producing the employee's assessable income.

Where employees are required to work from an Away Location Base (alternative work location) they are considered to be travelling 'on' work. The Away Location Base does not become a secondary regular place of work, as if attendance at the Away Location Base is required for more than 1 or 2 tours, the Employer will change the employee's Home Base for future tours.

The expenditure incurred on food and drink by a FIFO employee during a tour to an Away Location is not by reason that their duties of employment require them to live away from home at that Away Location. Rather, the costs are occasioned by the travel to the Away Location for the purposes of training or carrying out work at an alternative location. Employees are not contracted to perform their services at an Away Location on a regular or rotational basis, and as such are not generally required to live at an Away Location. Employees are only required to travel to an Away Location where such a specific and ad-hoc need arises for the Employer.

Conclusion

The Away Location Allowance is paid in respect of travel undertaken by employees in the course of their duties of employment, and are losses or outgoings for food, drink or incidental travel expenses. The Away Location Allowance is considered to be a travel allowance that is subject to PAYGW under section 12-35 of Schedule 1 to the TAA.

There are some circumstances where the amount of the travel allowance does not have to be reported in an employee's tax return as assessable income. The exception applies where:

•                     the allowance is not shown on the employee's payment summary;

•                     the allowance received is a bona fide overtime meal allowance or a bona fide travel allowance;

•                     the allowance received does not exceed the reasonable amount; and

•                     the allowance has been fully expended on deductible expenses.[4]

Where the Away Location Allowance paid does not exceed the Commissioner's reasonable amounts (as published in the relevant annual Taxation Determination), and all other requirements are satisfied, the amount of the allowance does not have to be reported as assessable income by the employee.

Question 8

The ATO has ruled on the FBT and PAYGW implications of a proposed change to the relevant Enterprise Agreements.

[1] Taxation Ruling TR 2021/4 Income tax and fringe benefits tax: employees: accommodation and food and drink expenses, travel allowances, and living-away-from-home allowances [14]

[2] Taxation Ruling TR 2021/4 Income tax and fringe benefits tax: employees: accommodation and food and drink expenses, travel allowances, and living-away-from-home allowances [15]

[3] Taxation Ruling TR 1992/15 [2].

[4] TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses [12]

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