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Ruling

Subject: Rebatable employer/Living-away-from-home

Question 1

Are you a rebatable employer under paragraph 65J(1)(k) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 2

If the answer to question 1 is yes, are you entitled to a rebate of fringe benefits tax under subsection 65J(2A) of the FBTAA?

Answer

Not applicable

Question 3

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

Answer

Yes

Question 4

Are you 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 under section 31 of the FBTAA?

Answer

Yes

Question 5

Is the reimbursement of removal and storage costs of household effects incurred by the employee exempt under section 58B of the FBTAA?

Answer

Yes

Question 6

Is the reimbursement of connection costs of utilities including, gas, electricity and telephone incurred by the employee exempt under section 58D of the FBTAA?

Answer

Yes

This ruling applies for the following period

Year ended 31 March 2010

Year ended 31 March 2011

The scheme commenced on

1 March 2010

Relevant facts

You provided a copy of your constituent documents.

You employed an employee recently on a short contract.

Prior to their employment the employee resided in a home they own some distance from your premises.

The employee has rented a home in the town in which you are located.

The employee placed excess furniture and other belongings in storage and has rented the home they own.

The employee has indicated that they intend to return to their home at the conclusion of their contract at a later date.

The employee's partner has taken temporary leave of absence and intends to return to their position at the end of their partner's contract.

You are considering paying them an allowance for food and accommodation.

In addition you are also considering reimbursing the employee for the:

· cost of temporary storage of household effects whilst living away from the home they own;

· cost of removalists for transportation of personal effects; and

· telephone, gas and electricity connection fees in the rented accommodation.

You have provided a copy of the Employment Agreement for the employee.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 20

Fringe Benefits Tax Assessment Act 1986 Section 30

Fringe Benefits Tax Assessment Act 1986 Section 58B

Fringe Benefits Tax Assessment Act 1986 Section 58D

Fringe Benefits Tax Assessment Act 1986 Section 65J

Fringe Benefits Tax Assessment Act 1986 Section 136(1)

Reasons for decision

Are you a rebatable employer for the purposes of paragraph 65J(1)(k) FBTAA?

Subsection 65J(1) sets out the categories of employers that are a rebatable employer.

It initially provides that an employer which is a public benevolent institution or a health promotion charity will not be a rebatable employer. As you do not come within either of these categories it is necessary to determine whether you come within one of the listed categories.

The relevant category for the purpose of their ruling is contained within paragraph 65J(1)(k) which states:

A non-profit society, or non-profit association, established for the purpose of promoting the development of aviation or tourism

To come within this paragraph you must be:

· a non-profit society, or non-profit association; and

· be established for the purpose of promoting the development of aviation or tourism.

Are you a non-profit society or association?

In general terms, an organisation is accepted as being a non-profit organisation where its constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people both when it is operating and when it winds up.

To satisfy this requirement your constituent of governing documents should contain acceptable clauses showing the organisation's non-profit character. The following examples of suitable clauses are contained within the publication Income tax guide for non-profit organisations:

Non-profit clause
The assets and income of the organisation shall be applied solely in furtherance of its above-mentioned objects and no portion shall be distributed directly or indirectly to the members of the organisation except as bona fide compensation for services rendered or expenses incurred on behalf of the organisation.

Dissolution clause
In the event of the organisation being dissolved, the amount that remains after such dissolution and the satisfaction of all debts and liabilities shall be transferred to another organisation with similar purposes which is not carried on for the profit or gain of its individual members.

While your rules contain a dissolution clause, they do not contain a non-profit clause that prevents the distribution of profit or assets for the benefit of particular people while you are operating.

In the absence of a suitable non-profit clause we are unable to conclude that your organisation is a non-profit organisation. Therefore, you are not considered to be a rebatable employer under paragraph 65J(1)(k).

If the answer to question 1 is yes, are you entitled to a rebate of fringe benefits tax under subsection 65J(2A) of the FBTAA?

As you are not a rebatable employer it is not necessary to consider this second question.

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

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:

· at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and

· it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for:

· additional expenses (not being deductible expenses) incurred by the employee during a period; or

· 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 their 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 the payments made to your employee in respect to their food and accommodation expenses will be a living-away-from home-allowance if:

· the payments are an allowance;

· 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

· the additional expenses and other disadvantages arise because the employee is required to live away from their usual place of residence in order to perform the duties of employment.

Are the payments an allowance?

Taxation Ruling TR 92/15 provides guidelines as to when a payment will be an allowance. TR 92/15 states at paragraph 2:

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.

You are proposing to pay the employee a set amount per week for food and accommodation. As these are definite predetermined amounts that do not depend upon the actual expenses incurred by the employee the payments will be an allowance.

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 incurred while residing in the rented accommodation.

Guidance for determining whether these expenses are deductible expenses was provided by the Federal Court in Roads and Traffic Authority of NSW v Federal Commissioner of Taxation 26 ATR 76; 93 ATC 4508 (RTA) in relation to a camping allowance paid to employees required to stay at a camp site provided by the employer that was more than seventy kilometres from the employee's place of residence. In concluding the allowance was not a living away from home allowance as the expenses were deductible expenses Hill J took the following factors into account:

the employee was required by the employer, as an incident of their employment, to live close by their work;

the employee was only living away from home for relatively short periods of time;

the employee did not choose to live at the places where the camp sites were located; and

the employees had a permanent home elsewhere.

In reaching this conclusion, Hill J distinguished the earlier decision of the Federal Court in Federal Commissioner of Taxation v Toms (1989) 20 ATR 466; 89 ATC 4373 (Toms). In distinguishing the facts of the RTA case from those in Toms case Hill J said at ATC 4522:

The facts of the present case are quite different. First, each of the persons deemed hypothetically to have incurred the expenditure are employees. They are not carrying on their own business. Second, they are required, as an incident of their employment, by their employer and for the purposes of the employer to live close by their work site for relatively short periods of time. No question arises of their choosing to live in these places. Each of the persons in question has a permanent house in which they live when not in camp. None of the employees spend inordinate periods of time in the camps so that the camp becomes their home. Their house is retained and the employees in question travel home at weekends. They do not remain in the camps. The costs in question here are an incident of the employment. The costs in Toms were not.

Toms concerned the deductibility of expenses associated with a caravan in which a forest worker stayed from Monday to Friday each week. The caravan was located one hundred and eight kilometres from the family home to which they returned each weekend.

In applying these decisions the expenses for which the allowance is being paid are not deductible expenses as the period can not be considered to be a relatively short period of time. Therefore, the allowance will be paid for additional non-deductible expenses.

Do the additional expenses arise because the employee is required to live away from their 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 their 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 place at which the person resides; or

· 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 Maquarie Dictionary defines 'usual' to mean:

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 their 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 their 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 they 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.

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 (Compass). 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 they or she faces in that period but only if the expenses are incurred because they are required to live away from their 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 their 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 they acquired another place of residence. Each looked to the taxpayer's continuing connection with the first place of residence including matters such as whether they 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 they 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 the home they own:

· the employee's position is a temporary 12 month position;

· the employee has retained ownership of the residence;

· the stated intention to return to live in the owned residence at the conclusion of the contract; and

· the stated intention of the employee's wife to return to the position from which she has taken temporary leave of absence at the conclusion of the employee's contract.

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

Guidance for determining whether the employee was required to live away from their usual place of residence was provided by the AAT in Compass. At paragraph 63 the AAT said:

Reading the whole of s 30(1) and particularly s 30(1)(b), it would seem that the agent requiring the employee to live away from their usual place of residence must be the employer, the inherent nature of the employment or a mixture of the two. It would seem that regard must be had to both in order to answer whether the employee is so required.

In considering these factors the employee's employment contract does not specify that they must live in the town where your premises are located. However, it does require the employee to undertake their duties at a location that is approximately 250 kilometres from their usual place of residence. It is accepted that this distance is such that it created a requirement for the employee to live away from their usual place of residence in order to perform their duties of employment.

Therefore, as all of the requirements of subsection 30(1) are satisfied the payments made to the employee in respect of food and accommodation are considered to be a living-away-from-home allowance.

Are you 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 under section 31 of the FBTAA?

The method for calculating the taxable value of the living-away-from-home allowance fringe benefit is set out in section 31 of the FBTAA.

Section 31 states:

Subject to this Part, the taxable value of a living-away-from-home allowance fringe benefit in relation to a year of tax is:

· if the fringe benefit is covered by subsection 30(1) - the amount of the recipients allowance reduced by:

· any exempt accommodation component; and

· any exempt food component; or

· if the fringe benefit is covered by subsection 30(2) - the amount of the recipients allowance.

The allowance that is being paid to the employee consists of a food and an accommodation component. Therefore, the taxable value of the living-away-from home allowance will be nil if the amount of the allowance is equal to the total of the exempt food and accommodation components.

Exempt food component

'Exempt food component' is defined in subsection 136(1) to mean:

· where the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out particulars of:

· the employee's usual place of residence during the recipients allowance period; and

· the place at which the employee actually resided during the recipients allowance period;

· whichever of the following is applicable:

where the food component of the recipients allowance has been determined by allowing for the whole or a part of the amount (which whole or part is in this definition referred to as the "deducted home consumption expenditure") of the expenditure that might reasonably be expected to have been incurred by the employee, in respect of the recipients allowance period, in respect of food or drink for eligible family members if the eligible family members had resided at their usual place of residence during the recipients allowance period:

if the deducted home consumption expenditure is not less than the sum of the statutory food amounts in respect of eligible family members in respect of the recipients allowance period - the food component of the recipients allowance; or

in any other case - the amount ascertained in accordance with the formula:

A - (B - C)

where:

A is the food component of the recipients allowance;

B is the sum of the statutory food amounts in respect of eligible family members in respect of the recipients allowance period; and

C is the deducted home consumption expenditure;

where subparagraph (iii) does not apply - the food component of the recipients allowance reduced by the sum of the statutory food amounts in respect of eligible family members in respect of the recipients allowance period; or

in any other case - nil.

If the employee provides you with the relevant living-away-from-home declaration the exempt food component will be determined by:

· the 'food component' of the allowance. This is the portion of the allowance that is reasonable compensation for additional expenses on food for the 'recipients allowance period'; and

· whether the food component is set with the intention that it cover all the food costs of the employee and their family.

You propose to pay an allowance based on TD 2010/4 Fringe benefits tax: for the purposes of Division 7 of Part II of the Fringe Benefits Tax Assessment Act 1986, what amount represents a reasonable food component of a living-away-from-home allowance for expatriate employees for the fringe benefits tax year commencing 1 April 2010 less the Statutory Food Amount.

Although the rates provided in TD 2010/4 are for expatriate employees it is accepted that they can be used to determine the food component for an employee who relocates within Australia. As this amount has been reduced by the Statutory Food Amount the exempt food component will be the amount paid.

Exempt accommodation component

'Exempt accommodation component' is defined in subsection 136(1) to mean:

· where the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out particulars of:

· the employee's usual place of residence during the recipients allowance period; and

· the place at which the employee actually resided during the recipients allowance period;

· so much (if any) of the recipients allowance as it would be concluded is in the nature of compensation to the employee for additional expenses that might reasonably be expected to be incurred by the employee in respect of the subsistence during the recipients allowance period of a lease or licence in respect of a unit of accommodation for the accommodation of eligible family members; or

· in any other case - nil.

If the employee provides you with the relevant living-away-from-home declaration the 'exempt accommodation component' will be the portion of the allowance that is in the nature of compensation for additional expenses of accommodation that the employee could reasonably be expected to incur in respect of a lease or licence of a unit of accommodation during the 'recipients allowance period'.

As the rent paid by the employee is more than the allowance it is accepted that the amount paid is compensation for additional expenses of accommodation that the employee could reasonably be expected to incur.

Therefore, as the food component being paid is equal to the exempt food component and the accommodation component being paid is equal to the exempt accommodation component the taxable value of the living-away-from-home allowance will be reduced to nil.

Is the reimbursement of removal and storage costs of household effects incurred by the employee exempt under section 58B of the FBTAA?

You are considering reimbursing the employee for the costs incurred in the storage of household effects and the transportation of personal effects.

Subsection 58B(1) of the FBTAA states:  

Where:

either of the following benefits is provided in, or in respect of, a year of tax in respect of an employee:

an expense payment benefit where the recipients expenditure is in respect of the removal or storage of household effects of the employee;

…

the removal or storage is required solely because:

the employee is required live away from their usual place of residence in order to perform the duties of that employment …

…

...

The removal or storage is required to enable a family member to:

... if subparagraph (b)(i) applies - take up residence, or continue to reside, at or near the place where the employee performs the duties of that employment while living away from their usual place of residence

...

(iii)

(d)..:

if subparagraph (a)(i) applies - documentary evidence of the recipient's expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date; and

the removal or storage was not provided in connection with travel undertaken by the employee in the course of performing the duties of that employment;

the benefit is an exempt benefit in relation to the year of tax.

Subsection 58B(2) of the FBTAA defines 'household effects' for the purpose of subsection 58B(1). It states:

For the purposes of this section:

a reference to the household effects of an employee is a reference to tangible property (whether or not owned by a family member) kept primarily for the personal use of family members; and

without limiting the generality of an expression used in subsection (1), the recipients expenditure shall be taken to be in respect of, and the recipients benefit shall be taken to consist of, the removal or storage of household effects if the expenditure or benefit is in respect of, or consists of, the transport, packing, unpacking or insurance of the household effects in connection with the removal or storage of the household effects.

Therefore, the reimbursement of the removal and storage expenses incurred by the employee in moving will be an exempt benefit under section 58B if:

the removal or storage is required solely because the employee is required to live away from their usual place of residence to perform duties of employment;

the removal or storage enables a family member to reside at or near the place where the employee performs the duties of that employment while living away from their usual place of residence;

documentary evidence of the employee's expenditure is provided to the employer; and

the removal or storage was not in respect of work travel undertaken by the employee.

If the employee provides you with the required documentation each of these requirements will be satisfied.

Is the reimbursement of connection costs of utilities including, gas, electricity and telephone incurred by the employee exempt under section 58D of the FBTAA?

You are also considering reimbursing the employee for the costs incurred in connecting the telephone, gas and electricity to the rented accommodation. This reimbursement will be an exempt benefit if the conditions contained in section 58D are satisfied.

The conditions that must be satisfied in relation to the connection of the telephone service are contained in subsection 58D(1) which states:

Where:

either of the following benefits is provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer:

an expense payment benefit where the recipients expenditure is in respect of the act of connecting or re-connecting a telephone service to a unit of accommodation;

(ii)… 

the unit of accommodation is for the accommodation of family members;

the accommodation is required solely because:

the employee is required to live away from their usual place of residence in order to perform the duties of that employment; or

…

if subparagraph (a)(i) applies - documentary evidence of the recipients expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date; and

…

the benefit is an exempt benefit in relation to the year of tax.

Therefore, the reimbursement of the costs incurred in connecting the telephone to the rented residence will be an exempt benefit if:

the unit of accommodation is for family members;

the accommodation is required solely because the employee is required to live away from their usual place of residence in order to perform employment duties; and

the employee provides you with the necessary documentary evidence.

Similarly, the conditions that must be satisfied in relation to the connection of the gas and electricity are contained in subsection 58D(2) which states:

Where:

either of the following benefits is provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer:

an expense payment benefit where the recipients expenditure is in respect of the act of re-connecting gas or electricity to a unit of accommodation;

…

the unit of accommodation is for the accommodation of family members;

the accommodation is required solely because:

the employee is required to live away from their usual place of residence in order to perform the duties of that employment; or

…

if subparagraph (a)(i) applies - documentary evidence of the recipients expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date; and

…

the benefit is an exempt benefit in relation to the year of tax.

Therefore, the reimbursement of the costs incurred in connecting the gas and electricity to the rented residence will be an exempt benefit if:

the unit of accommodation is for family members;

the accommodation is required solely because the employee is required to live away from their usual place of residence in order to perform employment duties; and

the employee provides you with the necessary documentary evidence.