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Ruling

Subject: Living-away-from-home

Question 1

Is the employee considered to be living away from their usual place of residence for the purposes of section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) for the duration of the secondment with their employer?

Answer

Yes.

Question 2

If the answer to question I is yes, is the proposed allowance a living-away-from-home allowance (LAFHA) pursuant to section 30 of the FBTAA?

Answer

Yes.

Question 3

If the answer to question 2 is yes, will the taxable value of the allowance be reduced to nil pursuant to section 31 of the FBTAA?

Answer

Yes.

Question 4

If the answer to question 1 is yes, will the FBT exemption pursuant to section 21 of the FBTAA apply in relation to the employee reimbursing the employee (or paying the real estate agent directly) the accommodation costs associated with them being required to live away from their usual place of residence?

Answer

Yes.

This ruling applies for the following period<s>:

Year ended 31 march 2010

Year ended 31 March 2011

Year ended 31 March 2012

The scheme commences on:

1 August 2009

Relevant facts and circumstances

The employee was employed by the employer in Location A and has lived in that location from a date before they were employed by the employer.

The employer identified a need for additional skills in Location B and the employee was requested to transfer there for a period of x months to fulfill this need. This length of time is listed in the employee's secondment agreement.

The employee's position in Location A has been recognized and the employee has agreed to retain his title there whilst seconded. It is understood that at the end of the successful completion of the assignment the employee will return to work in the Location A office.

Visa

The employee applied for an received a permanent residency visa in Location B and is a citizen of the country that Location A is in. Which is a different country to that in which Location B is situated.

Ties to Location A's country

The employee considers that country to be where their permanent home is and has a stated intent to return.

The secondment agreement allows for the employee to return their with the employer's assistance.

The employee has ties to that country as it is where all the immediate family w reside.

The employee and family resided in the Location A property, which they owned prior to the secondment. It was originally intended to have this property tenanted for the duration of the secondment.

The employee has no family ties to Location B and prior to commencing the secondment had no assets there. The employee's assets remain in the Location A country with those items brought to Location B to sustain the family whilst on secondment, and the remuneration paid the employer.

Location A residence

The employee original intention was to rent out this residence whilst on secondment. However, due to a series of circumstances provide the house was eventually sold instead.

Secondment Agreement

A copy of this was provided

Rental expenses

The employee intends to provide a LAFHA accommodation reimbursement.

Meal allowance

A food allowance will be in line with the food component of a LAFHA determined in accordance with the Australian Taxation Offices' Taxation Determination issued in each year.

The allowance is allowed for in the secondment agreement and will be taken out of the employee's current total remuneration cost

Relevant legislative provisions

FBTAA Section 21

FBTAA Section 30.

FBTAA Section 31

FBTAA Subsection 136(1).

Reasons for decision

Question 1

Is the employee considered to be living away from their usual place of residence for the purposes of section 30 of the FBTAA?

It is the facts of the case which determine whether an employee is living-away-from-home and 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 an employee would not have changed their 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) 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 addition, paragraph 22 of MT 2030 looks at expatriate employees who are living-away-from-home. It states:

Examples of employees on appointments of finite duration who will generally be living away from their usual place of residence are foreign nationals employed in Australia on a temporary basis and Australian residents (e.g., export consultants, diplomats, immigration officials, etc.) stationed in a foreign country for a time. Provided the appointment is for a limited period and the employee can be expected in the normal course to return to the same city or district of the home country to live, the employee may be treated as living away from his or her usual place of residence.

In looking at paragraphs 14 and 22 of MT 2030, they have an application as the secondment is listed as x period assignment (a finite duration) and the employee's home employment location is listed as Location A. For the employee to be living-away-from-home there has to be an intent to return to Location A.

However, the employee has sold the Location A residence so paragraph 33 of MT 2030 also has to be considered and it states:

While an employee eligible to make such a declaration would ordinarily be able to indicate that residential premises are being kept at the place where he or she usually resides, that may not always be the case. For example, for financial reasons an expatriate coming to Australia to work for a limited but substantial period may have terminated the lease on a house, flat or apartment where he or she lived in the home country intending to release it or lease another home on return. Similarly, a home could have been sold with the intention of acquiring another. Provided the tests set out in paragraphs 11-25 are satisfied and the expatriate intends to return to the same city or district to live upon resuming residence in the home country, he or she would be entitled to declare that his or her usual place of residence is that city or district.

Therefore if we concluded that the employee intends to return to Location A then they can list Location A as the usual place of residence given the sold the residence there and cannot return their live.

In respect of temporarily 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:

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.

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.

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.

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.

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)

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. . .

So following Wilcox J's decision in Hafza v. Director-General of Social Security (1985) 60 ALR 674 (Hafza case), as the employee's employment in Location A is not in respect of the completion of a specific task, for the employment to be temporary, the appointment needs to be for a relatively short predefined period of time.

In this case the employee has a secondment agreement for a predetermined period of x which although could be seen as a considerable length of time, it is relatively short when compared to the period of time a person may work over their life.

We also have to recognise that the employee has been granted permanent residency status in Location B. This allows the employee to stay in that country indefinitely.

However if we set aside the fact that he came from another country to work in Location B, but looked as someone moving between 2 locations in the same country to take up an assignment of the same duration, the fact that a person could continue to live in Perth beyond the length of the agreement would not preclude that person from being accepted as living-away-from-home.

Although having permanent residency is not necessarily fatal in the employment being temporary, that employment will only be temporary while the employee continues to work for the employer in the same position seconded to perform and that the employee continues to demonstrate an intend to return to Location A at the end of the period x.

Following the decision in the Hafza case the employee will be living-away-from-home for the purposes of section 30 of the FBTAA provided the employee demonstrates an intent to return to Location A at the end of the temporary employment, being the predefined period.

At this stage no action taken by the employer or employer that could be seen as contrary to the employee returning home at the end of period x.

However if any of the employee's or employee's actions in the future result in a change in the employee's intent to return to Location A after period x it would be difficult to accept that the employee would be living-away-from-home from when this intent changes. This would be because the employee would have in fact demonstrated an intent not to return to Location A at the end of the predefined period of employment.

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 the employee is living-away-from-home so we only need to look at the first and third points.

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 is non-deductible expenses as it for a private expense being food.

The secondment agreement allows for a LAFHA but is not determined separately from other remuneration. It forms part of the total remuneration package. This means that if the payment is not currently being received as a LAFHA and is being received in another form (more than likely as part of the salary currently being paid).

The Board of Review in Case C55 (1971) 17 CTBR(NS) 332; 71 ATC 242 (Case C55) which considered the former section 51A of the Income Tax Assessment Act 1936 (ITAA 1936).

In Case C55 the taxpayer, his wife and children lived in an isolated company mining town where he was jointly employed as secretary/accountant by a group of medical unions and hospital and medical societies. The town, which suffered from a harsh climate and a very high cost of living, was also at such a distance from neighbouring provincial towns as to prevent the sending of children there to day schools. The schooling provided in the town itself was inadequate and did not proceed beyond primary level. Faced with the problem and expense of educating his children (3 were already boarded out) the taxpayer moved his family to a provincial town with the necessary educational facilities where they took up residence in a house he purchased. The taxpayer continued to live in the mining town in the company house he and his family had previously rented. He joined his family for one weekend in two.

For part of the income year under review, the taxpayer received the same salary as prior to his family's move but at his request $6 per week was identified as a living-away-from-home allowance. For the remainder of the year his salary was increased by $10 per week and, of his total remuneration, $20 per week was allocated to such allowance.

In considering the question whether the taxpayer was in fact in receipt of a living-away-from-home allowance within the former sec.51A of the ITAA 1936 definition during the year the Board said, at ATC 247:

We do not think that the mere fact that a decision is made to create a living-away-from-home allowance by carving it out of an existing salary is necessarily and of itself an objection to a finding that an allowance exists. As long as the salary has, prior to such decision, contained as a matter of deliberate advertence an element of bona fide compensation for having to live away from home, it does not matter that, for example through ignorance of the taxation benefit that flows from identifying it as such, the allowance has not been so identified. In other words, a living-away-from-home allowance can then be described specifically, the remaining salary nominally lowered and a deduction claimed.

This indicates that it is possible for a LAFHA to be created from existing salary provided the salary contained an element of bona fide compensation for having to live away from home.

In this case both parties plan to renegotiate the existing agreement which would reduce the Australian salary to allow for the payment of a LAFHA. This LAFHA was allowed for in the original secondment agreement. As a result the salary component had do some extent contained an element of compensation for the employee being required to live-away-from-home

However the compensation still has to be bone-fide compensation for having to live-away-from-home the payment can be a LAFHA as defined in section 30 of the FBTAA. In other words it has to be linked to additional expenditure incurred and not simply a percentage of salary or an amount that is not linked to an expense incurred or disadvantage suffered.

In this case the whole allowance is based on amounts issued by the Commissioner that he believes is reasonable compensation for food expenses incurred by expatriate employees living-away-from-home in Australia. This means that the whole of the allowance can be seen as bone-fide compensation for additional expenditure incurred because of the fact the employee is required to live-away-from-home.

In addition as the payment will be part of an employment agreement it will be in respect of employment.

Therefore it can also be concluded that the whole of the allowance is in the nature of compensation for non-deductible additional expenses and that the allowance is a LAFHA as defined in subsection 30(1) of the FBTAA.

Question 3

If the answer to question 2 is yes, will the taxable value of the allowance be reduced to nil pursuant to section 31 of the FBTAA?

As stated above the entire allowance is being paid in respect of food. Under section 31 of the FBTAA the taxable value of a LAFHA benefit can be reduced by the exempt food component of that allowance. In respect of the exempt food component paragraphs 5 to 7 of MT 2030 state:

The exempt food component is so much of the allowance as is reasonable compensation for additional expenses on food. It is arrived at by first ascertaining the "food component" of the allowance, as defined in section 136. The food component is so much of the allowance as is in the nature of compensation for expenses the employee could reasonably be expected to incur on food and drink.

If the amount of the food component is set with the intention that it cover all food costs of the employee and (where applicable) his or her family, the exempt food component is the excess of that component over what the employee would normally expend on food if he or she were not living away from home. Those normal home food costs, referred to as the "statutory food amounts", are set in the Act at $42 per week for each adult and $21 per week for each child who is under 12 at the beginning of the relevant year of tax. Thus, if an employee with a wife and one child under 12 is receiving $130 a week to cover all food costs, the exempt food component is $130 reduced by $105, i.e., $25 of the allowance is exempt from fringe benefits tax.

If the food component of the allowance has been set to reflect only additional costs by reducing the allowance for home food costs, and the amount of the reduction on this account equals or exceeds the statutory food amounts, the amount of the net food component is the exempt food component.

In determining this amount the employer used the reasonable amount issued by the Commissioner in respect of expatriate employees working in Australia. Currently the amounts are listed in Taxation Determination TD 2010/4.

The amount being received by the employee has taken into account home food costs and the amount listed in TD 2010/4 that is applicable to employee has been reduced by the relevant statutory food amount. Therefore the amount being received reflects additional food costs.

Therefore the whole amount received represents the exempt food component of the allowance and the taxable value is reduced to nil.

Question 4

Will the FBT exemption pursuant to section 21 of the FBTAA apply?

In respect of the application of section 21 of the FBTAA paragraphs 45 and 46 of the FBTAA state:

For example, the employee's actual accommodation expenses may be reimbursed by the employer, or the employee and (where applicable) the employee's family may be permitted to occupy residential accommodation owned by the employer.

In such circumstances, section 21 of the Act would operate to exempt the reimbursement which would otherwise be an expense payment fringe benefit taxable in accordance with section 23, and sub-section 47(5) would operate to exempt the accommodation which would otherwise be a residual fringe benefit taxable in accordance with section 49 or 51.

In this case the employer will either reimburse the employee's accommodation expenses or pay the landlord directly. This payment would be an expense payment benefit.

For section 21 of the FBTAA to apply the expense payment benefit has to be:

· provided to a current employee;

· the expenditure is in respect of accommodation for eligible family members

· the accommodation is not provide while the employee is travelling in the course of their employment

· the accommodation is required solely by reason that the employee is required to live away from their usual place of residence to perform the duties of their employment; and

· a living-away-from-home-declaration has been provided before the declaration date

All of these conditions will be satisfied and therefore section 21 of the FBTAA will apply to exempt the expense payment benefit in respect of the leased accommodation.