Edited version of private ruling

Authorisation Number: 1011604874672

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Ruling

Subject: Living-Away-From-Home Allowance

Will the allowance that you will receive from your employer for rent and food form part of your assessable income?

Answer

No.

This ruling applies for the following periods:

1 April 2010 -31 March 2011

1 April 2011 -31 March 2012

1 April 2012 -31 March 2013

1 April 2013 -31 March 2014

1 April 2014 -31 March 2015

The scheme commenced on

1 August 2010.

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.

You are a foreign citizen.

You arrived in Australia in January 2009 on an education visa.

In June 2010 you were granted a temporary business visa under which you are sponsored by your employer.

You intend to return to your country of origin with your spouse and children when your current visa expires.

Under the terms of your employment, you will receive, subject to maintaining a temporary residence visa, an allowance that comprises:

§ a component paid to compensate you for the cost of renting; and

§ a component paid to compensate you for the additional food costs.

This allowance will be received in addition to your salary.

While in Australia, you are living in rented accommodation.

You own a house in your country of origin, which you have retained with a mortgage. Your house has been let while you are working in Australia, and you have a four week notice to vacate agreement with your tenants.

You have stored your surplus personal effects with your parents and parents-in-law, who both live in the country of origin.

You hold, and have maintained various bank accounts and credit cards in your country of origin.

You have maintained a personal pension fund in your country of origin.

You have maintained your professional membership in your country of origin.

All of your relatives live in the country of origin and you have no relatives in Australia.

You will provide your employer with a living-away-from-home allowance declaration.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 30

Fringe Benefits Tax Assessment Act 1986 subsection 30(1)

Income Tax Assessment Act 1936 section 23L

Income Tax Assessment Act 1936 subsection 23L(1)

Income Tax Assessment Act 1997 subsection 6-15(3)

Will the allowance that you will receive from your employer for rent and food form part of your assessable income?

Summary

The allowance will not form part of your assessable income if it is a living-away-from-home allowance fringe benefit.

An allowance constitutes a living-away-from-home allowance fringe benefit under section 30 of the Fringe Benefits Tax Assessment Act 1986 (1986), if:

(a) it is reasonable to conclude from all the surrounding circumstances that some or all of the allowance is in the nature of compensation for:

§ additional non deductible expenses incurred by the employee during a period; or

§ additional non deductible expenses and other additional disadvantages to which the employee is subject during a period; and

(b) the additional expenses and other disadvantages arise because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment.

As both of these conditions are met the allowance will be a living-away-from-home allowance fringe benefit that will not form part of your assessable income.

Detailed reasoning

Subsection 6-15 of the Income Tax Assessment Act 1997 (ITAA 1997) outlines the amounts that will not form part of your assessable income. Within this section, subsection 6-15(3) provides that an amount that is 'non-assessable non-exempt income' it will not be assessable income.

Section 6-23 of the ITAA 1997 provides that an amount of ordinary income or statutory income will be 'non-assessable non-exempt income' if a provision of the Act states that it is not assessable income and is not exempt income.

In the context of a living-away-from-home allowance the relevant provision is subsection 23L(1) of the Income Tax Assessment Act 1936 (ITAA 1936) which states:

Income derived by a taxpayer by way of the provision of a fringe benefit is not assessable income and is not exempt income of the taxpayer

In general terms, a fringe benefit is a benefit provided to an employee by the employer in respect of the employee's employment which is not one of the benefits excluded from the fringe benefit definition by paragraphs (f) to (s) of the 'fringe benefit' definition that is contained within subsection 136(1) of the FBTAA. For the purposes of this ruling, the relevant paragraph is paragraph (f) which provides that a payment of salary or wages or a payment that would be salary or wages if salary or wages included exempt income for the purposes of the ITAA 1936 will not be a fringe benefit.

Generally, most allowances are treated as a payment of 'salary or wages'. However, a living-away-from-home allowance (LAFHA) does not come within the definition of 'salary or wages'.

Therefore, in determining whether the allowance that you will receive will form part of your assessable income the initial question to consider is whether the allowance is a LAFHA. If it is, then it will not form part of your assessable income.

Will the allowance be a LAFHA?

Section 30 of the FBTAA sets out the circumstances in which an allowance will be a LAFHA.

Subsection 30(1) of the FBTAA 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 employee is required to live away from his or her usual place of residence in order to perform the duties of that employment;

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 summarising the requirements of subsection 30(1), an allowance will be a living-away-from home-allowance if:

(a) 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 non deductible expenses incurred by the employee during a period; or

§ additional non deductible expenses and other additional disadvantages to which the employee is subject during a period; and

(b) the additional expenses and other disadvantages arise because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment.

(a) Is the allowance paid for additional non deductible expenses and other disadvantages?

The allowance will be paid to compensate you for the rental expenses and additional food costs that you will incur while in living in Australia. As you would not have incurred the rental expenses or the additional food costs if you had not been living in Australia it is accepted that the allowance is a payment for additional expenses.

Further, as you will be living in Australia for a period of four years you will not be able to claim an income tax deduction for these expenses. Therefore, the allowance is paid for additional non deductible expenses.

(b) Do the additional expenses arise because of a requirement to live away from your usual place of residence in order to perform the duties of employment?

In determining whether the additional expenses arise because of a requirement to live away from the usual place of residence it is necessary to identify the usual place of residence.

The FBTAA does not define 'usual place of residence'. However, in subsection 136(1) it does define a '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 on a shared basis.

In the absence of a legislative reference it is relevant to refer to the ordinary meaning of 'usual'. The Macquarie Dictionary defines 'usual' to mean:

1. habitual or customary: his usual skill.
2. such as is commonly met with or observed in experience; ordinary: the usual January weather.
3. in common use; common: say the usual things.

noun

4. that which is usual or habitual.

phrase

5. as usual, as is (or was) usual; in the customary or ordinary manner: he will come as usual.

Guidelines for determining an employee's usual place of residence are provided by Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits.

Paragraphs 15 to 18 refer to various decision of Taxation Boards of Review relating to the former 51A of the ITAA 1936. In referring to these decisions paragraph 14 of MT 2030 states:

As the decisions illustrate, 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.

Further discussion occurs at paragraphs 19 to 25. Paragraph 20 provides the following general rule:

Employees who move to a new locality to take up a position of limited duration with an intention to return to the old locality at the end of the appointment would generally be treated as living away from their usual place of residence. For example, a construction worker having to travel to a construction site to live and work would be in this category unless he had abandoned the former place of residence upon moving to the locality of the site. A case of the latter situation would be where the employee decided to permanently leave the former home, e.g., if a resident of Sydney, on obtaining a job for two years on a construction site in a remote part of Western Australia, decided to "sell up" in Sydney and move permanently to Western Australia to live.

As an example of the application of this general rule paragraph 22 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.

These principles and the various cases that have considered usual place of abode or usual place of residence were discussed by the Administrative Appeals Tribunal in Compass Group (Vic) Pty Ltd (as trustee for White Roche & Associates Hybrid Trust) v. FC of T [2008] AATA 845; 2008 ATC 10-051. At paragraphs 55 and 56 Deputy President S A Forgie said:

55. There are several principles that can be gleaned from these cases. The first is that the fact that s 30 and, before it, s 51A, are concerned with what is described as a living-away-from-home allowance. That allowance is paid by an employer to an employee in respect of the employee's employment. It is a payment in the nature of compensation. The compensation is to meet additional expenses the employee incurs during a particular period and for other additional disadvantages he or she faces in that period but only if the expenses are incurred because he or she is required to live away from his or her usual place of residence in order to perform the duties of employment. As Mr Cotes alluded to in CaseB47, it necessarily assumes that the taxpayer has two places that could be described as his or her place of residence before one or the other needs to be identified as the "usual place of residence".

56. Putting to one side the case of Case 50, all cases looked to the taxpayer's place of residence before he or she acquired another place of residence. Each looked to the taxpayer's continuing connection with the first place of residence including matters such as whether his or her family continued to live there, the frequency of the taxpayer's visits there and whether or not that was a place to which the taxpayer could return at will if he or she so wished. Also relevant was the nature of the employment and whether the move to another place was a temporary or permanent move.

In considering the factors referred to by the AAT the following factors indicate that you are living away from your usual place of residence:

§ you are a citizen of a foreign country;

§ you are in Australia on a four year fixed term class 457 visa. You will not be able to remain in Australia once this visa has expired;

§ you have retained various ties to the country of origin including ownership of your previous residence, personal effects, various bank accounts , credit cards, a pension fund and a professional membership;

§ you have indicated your intention to return to the country of origin at the end of the visa expiry period and, subsequently occupy your home in the country of origin; and

§ you will be providing your employer with a living-away-from-home allowance declaration.

Therefore, as the usual place of residence is in the foreign country and the employment location is in Australia, it is accepted that the rental and additional expenses arise as a result of you being required to live away from your usual place of residence in order to perform your duties of employment.

Conclusion

The allowance paid to you will be a LAFHA fringe benefit. As it is a fringe benefit it will not form part of your assessable income.