Edited version of private ruling

Authorisation Number: 1011658233294

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Ruling

Subject: Living Away From Home Allowance

Relevant facts

You presently have an employee who was recruited from an overseas location on a fixed term contract.

You have supplied us with a copy of an employee contract which shows that in addition to his salary the employee is also paid a living away from home allowance.

By mutual agreement the employment contract is to be extended.

You wish to know if the contract extension will have any effect on the continued payment of the living away from home allowance.

The employee owns a home in his country of origin in which he and his wife resided prior to moving to Australia.

When the contract reaches completion the employee and his wife will return to their country of origin to reside in the home.

From the commencement of his original employment contract the employee has made regular short term visits to his country of origin. This pattern will continue for the duration of the extended employment contract.

The employee and his wife currently rent accommodation in Australia.

The employee has not and does not intend to apply for permanent residency in Australia.

Reasons for decision

Living Away From Home Allowance (LAFHA)

Question 1

Would the current payment of a living away from home allowance to your employee still be considered a living away from home allowance under section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) when his existing employment contract is extended by a further three years?

Answer: Yes

Sub section 136(1) of the Fringe benefits Tax Assessment Act 1986 (FBTAA) provides the following definition of a living away from home allowance benefit:

"living-away-from-home allowance benefit" means a benefit referred to in section 30 of the FBTAA

Subsection 30 of the FBTAA describes what constitutes a living away from home allowance benefit.

SECTION 30 LIVING-AWAY-FROM-HOME ALLOWANCE BENEFITS

30(1) [Provision of benefit]

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.

Paragraph 2 of Miscellaneous Taxation Ruling MT 2030 states that 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.

For an allowance to be classified as a living away from home allowance it depends solely on the above conditions being satisfied.

From the information available it is apparent that all necessary living away from allowance conditions are being satisfied under the current employment contract and will continue to be satisfied under the extended employment contract.

Accordingly the allowance will continue to be a living away from home allowance.

Question 2

Would the current payment of a living away from home allowance to your employee still be considered a living away from home allowance under section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) when the employee travels to his home country during the term of his contract?

Answer: Yes

Travel by the employee to his home country during the term of his contract is short term for the purpose of visiting family and does not alter the material nature of a living away from home allowance paid to the employee. Consequently the living away from home allowance being paid will not be affected.