Edited version of private ruling

Authorisation Number: 1011478932947

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Ruling

Subject: Living-away-from-home allowance benefits

Question 1

Does the Commissioner consider it appropriate to permit the employer to treat the employee as living-away-from-home pursuant to section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), for the extended period of the assignment?

Answer

No.

Question 2

Will the Commissioner treat the allowance paid by the employer to the employer as a living-away-from-home allowance (LAFHA) pursuant to section 30 of the FBTAA for the extended period the assignment?

Answer

No.

Question 3

Whether for the extended assignment period, will fringe benefits tax (FBT) concessions continue to apply pursuant to section 31 of the FBTAA?

Answer

No

This ruling applies for the following period:

Year ended 31 March 2011

Year ended 31 March 2012

Year ended 31 March 2013

The scheme commences on:

1 September 2008

Relevant facts and circumstances

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

Background

The employer's operations are based in Location A, however regional branches are located elsewhere.

The employer acquired a business at Location B and a new branch manager was appointed. At this time the employee was sent to Location B from Location A to assist the newly appointed branch manager in transitioning to their new role.

The branch manager subsequently felt the role did not suit them or their family and subsequently transferred elsewhere.

The employer readvertised for a branch manager but no suitable candidates were found. As a result the employer offered the employee a temporary position as Regional Manager.

Under this arrangement the employee would be required to hold the position for a period of twelve months with an option to extend for another twelve months (that is, a maximum of two years).

The employee would then return to Location A when this agreement expires, which would be either after twelve or twenty four months.

The employee's goal was to improve the operations of the branch and to find a replacement Branch Manager.

A decision was made to exercise the option of extending the contract for an additional twelve months.

It was decided to extend the assignment again for another two years because a suitable manager with experience in the industry had still not been found.

As the employer concluded that the employee was required to live away from home in order to perform the duties of employment, a LAFHA was provided.

It is intended that the employer will continue to pay this allowance for the additional twenty four month extension.

Additional Person Details

The employee and the employee's spouse own a home in Location A.

When the employee first relocated the employee's spouse remained at that home.

The spouse did not relocate until the option was exercised.

Whilst in Location B the home in Location A is being maintained by the employee. The employee has not relocated furniture or any significant personal effects and intends to return to that home at the end of the assignment.

The allowance

The LAFHA food component paid to the employee for the FBT year ended 31 March 2009 was $XXX per week, to compensate for additional food costs in excess of the employee and his spouse's home consumption (that is, statutory food amount). The food component paid is in line with the exempt food component of a LAFHA determined in accordance with the ATO guidelines provided in TD 2008/3 in respect of the year commencing 1 April 2008.

The employer has confirmed the food component of the LAFHA will continue to be determined in accordance with the reasonable food amount as prescribed by the Commissioner.

In addition to the food component, an accommodation allowance was paid during the 12 months of the 2009 FBT year in respect of rental expense incurred whilst on assignment. The accommodation component is paid as an allowance and is not a reimbursement, nor is rent paid directly to the landlord/estate agent.

Relevant legislative provisions

FBTAA Section 30.

FBTAA Section 31.

FBTAA Subsection 136(1)

Reasons for decision

Question 1

Is the employee living-away-from-home?

It is the facts of the case which determine whether an employee is living-away-from-home and Miscellaneous Taxation Ruling MT 2030 provides guidance on how the Commissioner determines whether an employee is living-away-from-home. Paragraph 14 states in part:

. . .the question whether an employee is living away from his or her usual place of residence normally involves a choice between two places of residence, i.e., the place where the employee is living at the time or some other place. A person is regarded as living away from a usual place of residence if, but for having to change residence in order to work temporarily for his employer at another locality, the employee would have continued to live at the former place. It would be relevant in reaching that view that there is an intention or expectation of the employee returning to live at the former place of residence on cessation of work at the temporary job locality. This would be relevant even if the employee is living in temporary quarters close to a temporary job site. . .

In essence, this paragraph effectively states that 'but for' having to relocate temporarily for employment the employee would not have changed residence and, once that temporary employment ceases the employee will return to that residence.

For the purposes of the FBTAA a place of residence is defined in subsection 136(1) of the FBTAA and paragraph 12 of MT 2030, which explains this definition, states:

A place of residence of a person is thus the place where he or she resides or has some form of sleeping accommodation. The customary meaning of the word "reside" is to dwell permanently or for a considerable time, or have one's abode for a time. In turn, "residence" means the place, especially the house, in which one resides; a dwelling place; or a dwelling.

In this case the employee was residing In Location A immediately prior to relocating to Location B for six months and the employee's intent is to return to that home after leaving Location B.

In looking at paragraph 14 of MT 2030 the employee will be living-away-from-home providing that the absence from that home in Location A is temporary. In other words the employee can only temporarily employed in Location B by the employer to be considered living-away-from-home.

Taxation Ruling TR 2008/9: Income tax: meaning of 'Australian superannuation fund' in subsection 295-95(2) of the Income Tax Assessment Act 1997 contains the Commissioner's view of what constitutes temporarily in paragraphs 155 to 170 and paragraphs 155 to 159 states:

155. The word 'temporarily' in subsection 295 95(4) of the ITAA 1997 is not defined in the ITAA 1997. Therefore, it takes its meaning from the context in which it appears.

156. While there is no case law which has considered the meaning of 'temporarily' in subsection 295 95(4) of the ITAA 1997, a number of cases have considered whether a person's absence from Australia was 'temporary' for the purposes of social security legislation. These cases are relevant in the context of subsection 295 95(4), particularly in cases involving SMSFs, because it is the individual trustee or trustees or directors of the corporate trustee of the fund that normally exercises the CM&C of the fund. The cases are also relevant because they consider the meaning of 'temporary' in the context of residence.

157. In Hafza v. Director General of Social Security (Hafza), Wilcox J considered whether the taxpayer's absence from Australia was 'temporary' for the purposes of subsection 103(1) of the Social Services Act 1947. That section provided that child endowment was not payable to a person outside Australia unless that person's usual place of residence was in Australia or the person's absence from Australia was temporary only.

158. The taxpayer in Hafza travelled from Australia to Lebanon with her husband and children in April 1978 for a visit which was intended to last for three months. The family however did not return to Australia until June 1982. Upon her return, the taxpayer sought payment of child endowment for the period of absence from Australia on the basis that her absence was temporary only and that she did not cease to have her usual place of residence in Australia.

159. Wilcox J stated the following in relation to the meaning of the word 'temporary':

…I think that the adjective 'temporary' was used to denote an absence that was, both in intention and in fact, limited to the fulfillment of a passing purpose. The purpose might be of a business or professional nature; it might be for a holiday or for compassionate or family reasons. But, whatever the purpose, it seems to me to be implied in the concept of 'temporary' absence that the absence will be relatively short and that its duration will be either defined in advance or be related to the fulfillment of a specific, passing purpose. If, for example, a businessman travels overseas for a period of three months to engage in sales discussions, intending always to return to his usual home in Australia and in fact returning at the end of that period, there is no difficulty about describing his absence as 'temporary'. If that same person moves himself and his family to an overseas location, intending to remain there indefinitely in pursuit of business orders, his absence would not properly be described as 'temporary'; and I think that this is so even if, after two months for family or personal reasons, he decides to abandon his overseas home and return to Australia. Under such circumstances the absence from Australia would have turned out to be of limited duration, but it would not have been in fulfillment of a passing need.

The intention to return to Australia at the expiration of a particular time being, in recognition of the word 'passing', relatively short - will normally be a feature of an absence which…may properly be described as temporary. There may, however, be exceptions. A person may travel overseas to fulfill a particular purpose which is expected to occupy a relatively short time, the exact extent of which is not known in advance and with the intention thereafter of returning to Australia. An example would be to undertake a particular journey or to attend the bed of a sick relative. I see no problem about describing such an absence as a 'temporary' absence from Australia because it is a short term absence to fulfill a particular purpose.

I think that it follows from my view as to the meaning of the word 'temporary' that the intention of the absentee is of considerable importance; indeed, it will often be decisive. If the businessman on his world sales tour should decide to abandon his plan to return to Australia at the expiration of three months and to remain indefinitely in New York, his absence from Australia will cease to be a temporary absence. It will become an indefinite absence, notwithstanding that it may turn out not to be a permanent absence. Similarly, if an endowee, who has left Australia upon a compassionate visit to a sick relative, should decide indefinitely to stay on at the relative's home after the completion of that purpose, the absence will cease to be temporary notwithstanding an intention eventually to return to Australia. (emphasis added)

160. On the basis of the facts of the case, His Honour held that the taxpayer's absence, from the time her husband commenced employment in Lebanon (which was sometime in 1979) was not a temporary absence. Some of the important factors that supported this conclusion included the facts that the taxpayer and her husband had no assets in Australia, did not hold return air tickets, that they resided with the taxpayer's husband's family in Lebanon, that the children attended the local school in Lebanon and that the taxpayer's husband engaged in paid employment involving his travelling to a number of other countries.

If we go back to what was quoted in paragraph 159 of TR 2008/9 which Wilcox J stated in relation to the meaning of the word 'temporary' (at 682-683) which states:

. . .I think that the adjective 'temporary' was used to denote an absence that was, both in intention and in fact, limited to the fulfillment of a passing purpose. The purpose might be of a business or professional nature; it might be for a holiday or for compassionate or family reasons. But, whatever the purpose, it seems to me to be implied in the concept of 'temporary' absence that the absence will be relatively short and that its duration will be either defined in advance or be related to the fulfillment of a specific, passing purpose. . .

In this case the employee was asked to relocate to Location B for six months to assist a newly appointed branch manager in transitioning to their new role. Following Wilcox J's decision in Hafza v. Director-General of Social Security (1985) 60 ALR 674 (Hafza), the employee's temporary absence would have been the fulfilment of that passing purpose. In addition the employee's spouse remaining at the home in Location A provided further evidence of the employee's intent to return to that home.

However the employee did not return at the end of this six month period. The employee accepted the role of branch manager. This was because the manager the employer originally appointed decided to leave Location B leaving the position effectively vacant. Unable to find a replacement the employee was asked to stay on in the position. At this time both parties entered into an agreement that the employee would remain in the role for a maximum of two years to allow the employer to find someone to take over the position. This created a new purpose for the employee being in Location B.

Looking at the decision in the Hafza it could be argued that the employee's absence ceased to be temporary by choosing to remain in Location B to take on the role of manager over returning to the Location A home. However the circumstances for the employee staying on were not ones that could have been foreseen by either party at that time the employee originally went to Location B.

However the position the employee went into is not a temporary position and the reason the employee agreed to stay on was to allow the employer time to find a suitable replacement. To allow this both parties entered into an agreement which set the absence at a maximum of two years.

Therefore it is reasonable to accept that the employee would remain on while a suitable long term solution was made and that the absence would remain temporary while that search was undertaken.

Although the employee was already in Location B when the agreement was met, if we follow Wilcox J's statement that the 'temporary' absence needs to be for a duration which has been defined in advance, the employee's absence will cease to be temporary at the end of the agreed two year term.

This two year time period was to allow the employee time to find someone to take up the position full time. As they were unable to fill this position they have now asked the employee to continue in the position for another two years.

Although the original extention could be seen as a response to an unforseen event, the second extention could not as both parties knew when the employee was due to return home. What it does do however is establish a pattern where by the employee has now chosen twice to remain in Location B over returning home. In addition during the original two year agreement the employee's spouse also relocated to Location B.

Therefore although the employee had an intent to return home the employee currently occupies a permanent position to which they chose to remain in Location B to perform over returning home. Following Wilcox J's rationale in applying his decision in Hafza the employee's absence ceased to be temporary when in fact that absence ceased to be limited to the fulfilment of a passing purpose.

In this case the passing purpose was the two year predefined period the parties agreed to and the absence will cease to be temporary when that two year period passes.

Intention to return

MT 2030 makes it clear that an integral component of living-away-from home for the purposes of the FBTAA is an intention to return to the place of origin. As observed by Wilcox J in Hazfa (at 680)

As a general concept residence includes two elements: physical presence in a particular place and the intention to treat that place as a home; at least for the time being, not necessarily forever.

It also needs to be noted that it is not enough to have an intention to return to the country of origin 'one day'. Wilcox J (at 685) when discussing the concept of the intent to return in Hafza stated that the intent needs to be one to return to the place of origin at the earliest opportunity.

Intent is a transient state of mind and a person's intent to do one thing or another can change from moment to moment. As intent is a state of mind it is difficult to truly 'prove' and an individual's intent can only be inferred from the surrounding facts and circumstances. In this case the question to ask would be whether or not the employee's actions were consistent with an expressed mental attitude of wanting to return to location A at the earliest possible opportunity. The employees actions were not consistent with this stated intent.

Therefore the employee will not be considered to be living-away-from-home for the purpose of section 30 of the FBTAA if they accept the two year extention to the Location B assignment.

Question 2

Is the allowance being received by the employee a LAFHA benefit?

Paragraph 2 of MT 2030 describes a LAFHA as:

A living-away-from-home allowance exists where it is reasonable to conclude from all the surrounding circumstances that some or all of the allowance is in the nature of compensation to the employee for additional expenses incurred, or additional expenses incurred and other disadvantages suffered, because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment. Additional expenses do not include expenses for which the employee would be entitled to an income tax deduction.

Therefore for a payment to be a LAFHA the following conditions must be satisfied:

§ it is an allowance paid by the employer to the employee in respect of the employment of that employee;

§ the employee is required to live away from their usual place of residence so as to be able to perform the employee's duties of employment; and

§ it would be concluded that the whole or part of that allowance is in the nature of compensation for non-deductible additional expenses that the employee incurs, or for non-deductible additional expenses and additional disadvantages arising, as a result of having to live away from home to perform the duties of employment.

We have already determined that the employee is not living-away-from-home and therefore the payment cannot be a LAFHA.

However the payment being received is an allowance. This is because the payment being received is a predetermined amount and paragraph 2 of Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement, describes as 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.

In addition, the expenses that the allowance is being paid to cover are non-deductible expenses as they are for private expenses being food and accommodation.

Question 3

As the allowance is not a LAFHA, the payment cannot be a LAFHA benefit.

Therefore section 31 if the FBTAA has no application in this case.