Edited version of private ruling

Authorisation Number: 1011644203004

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Ruling

Subject: Fringe Benefits Tax - living away from home allowance

Question 1

Is the allowance paid to your employee a living-away-from-home allowance benefit pursuant to subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

If the answer is yes, is your organization then entitled to reduce the taxable value of the living-away-from-home allowance fringe benefit by the amount of the exempt accommodation and exempt food components of the allowance, under section 31 of the FBTAA?

Answer

Yes.

This ruling applies for the following period<s>:

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

1 April 2015 - 31 March 2016

The scheme commences on:

2 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.

Your employee is an overseas resident with skills needed by your organisation, and employment in Australia has been achieved for your employee under a 457 visa.

The employee has been offered a fixed term employment contract.

You provided assistance to the employee with relocation expenses.

The employee previously lived in an overseas country.

The employee owns the property in which he was residing overseas.

The employee has rented out the property while working in Australia.

The employee's personal effects were shipped to Australia.

The employee's spouse has joined the employee in Australia.

You are considering paying the employee an allowance for:

§ accommodation expenses based on the rent being paid; and

§ additional food costs.

Your employee has confirmed that he has no intention of applying for permanent residency, and intends to return to his previous residence at either the expiry of his 457 visa, or if he is granted a twelve month visa extension, then at the end of the visa extension.

The employee will provide you with the appropriate living-away-from-home allowance declarations on an annual basis.

Reasons for decision

These reasons for decision accompany the Notice of private ruling

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Issue 1

Question 1

Is the allowance paid to your employee a living-away-from-home allowance benefit pursuant to subsection 30(1) of the FBTAA?

Summary

An allowance constitutes a living-away-from-home allowance benefit under subsection 30(1) of the FBTAA where:

(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.

As both of these conditions are met the allowance paid to your employee will be a living-away-from-home allowance.

Detailed reasoning

Section 30 of the FBTAA sets out the circumstances in which a payment to an employee will be a living-away-from-home allowance benefit.

Subsection 30(1) 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 these requirements 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 the employee for additional food expenses and accommodation expenses. As the employee would not be able to claim an income tax deduction for these expenses this requirement is satisfied.

(b) Do the additional expenses 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?

In determining whether the additional expenses arise as a result of the employee being required to live away from his 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 Income Tax Assessment Act 1936 (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 the employee's usual place of residence is in an overseas country:

§ the employee is a citizen of an overseas country;

§ the employee is in Australia on a Subclass 457 temporary resident visa;

§ the employee has retained ownership of the residence in the overseas country; and

§ the stated intention to return to live in the overseas residence at the conclusion of the contract, if his 457 visa is extended for twelve months, or at the expiry of the 457 visa.

Therefore, the employee is considered to be currently living away from his usual place of residence.

Given the usual place of residence is in the overseas country and the employment duties are being performed in Australia it is accepted the employee is required to live away from his usual place of residence in order to perform his duties of employment.

As all the required conditions have been met, the allowance paid to the employee is a living-away-from-home allowance benefit pursuant to subsection 30(1) of the FBTAA.

Question 2

If the answer is yes, is your organization then entitled to reduce the taxable value of the living-away-from-home allowance fringe benefit by the amount of the relevant accommodation and food components of the allowance, under section 31 of the FBTAA?

Section 31 of the FBTAA sets out the method for calculating the taxable value of a LAFHA. It states that where fringe benefit is covered by subsection 30(1) the taxable value is:

… the amount of the recipients allowance reduced by:

(i)  any exempt accommodation component; and

(ii) any exempt food component; or

'Exempt accommodation component' and 'exempt food component' are defined in subsection 136(1) of the FBTAA. Both definitions provide that the exempt amount will depend upon whether the employee provides a Living away from home declaration. If a declaration is not provided, the exempt components will have a nil value.

Exempt accommodation expenses

If a declaration is provided, the exempt accommodation component is so much of the allowance as is reasonable compensation for additional expenses on accommodation that the employee could reasonably be expected to incur.

As the accommodation component is equal to the annual rent being paid by the employee the amount of the accommodation component will be the exempt accommodation component if the employee provides the necessary declaration.

Exempt food component

If a declaration is provided, 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. If the amount of the 'food component' is set with the intention that it covers all food costs of the employee and family, the exempt food component is the excess of that component over what the employee would normally spend on food if he or she was not living away from home. However, 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.

You have advised that the amount of the food component will be determined on the basis of the rates set out in the annual Taxation Determination that sets out the amounts that represent a reasonable food component of a living away from home allowance for expatriate employees.

Conclusion

If the employee provides a declaration the taxable value of the living away from home allowance will be reduced by the exempt accommodation and food components.