Edited version of private ruling

Authorisation Number: 1011672493801

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Fringe Benefits Tax - Living away from home allowance

Question 1

Is your employee considered to be living away from his usual place of residence for the purpose of section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) for the duration of his employment in Australia?

Answer

Yes

Question 2

If the answer to question 1 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 reimbursement of the employee's rental expenses be an exempt benefit pursuant to section 21 of the FBTAA?

Answer

Yes

This ruling applies for the following period

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 April 2010

Relevant facts

Your employee is a resident of an overseas country.

Your employee is married and has a child. Both the spouse and child are citizens of an overseas country.

Due to your need for someone with your employee's skills, experience and qualifications you offered him a new position to commence working in your company in Australia.

Your employee is required to have a 457 visa to take up his employment in the Australian office.

Your employee's employment is subject to him continuing to hold a 457 visa allowing him to work in Australia. If an appropriate visa is not held then his employment terminates immediately and he would be required to repatriate to the country of origin.

Your employee has no family ties in Australia. He has all of his social and business connections in the country of origin.

Your employee intends to return to the country of origin in time to begin his daughter's schooling.

Your employee will maintain his bank accounts, brokerage accounts, pension plan and other non retirement investments in the home country.

During his employment with you in Australia, your employee is intending to reside in rental accommodation.

Your employee has no intention to acquire any property or other significant investments in Australia.

You also confirm your employee will sign a living away from home declaration and provide this to you for each year he is considered to be living away from home.

Is your employee considered to be living away from his usual place of residence for the purpose of section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) for the duration of his employment in Australia?

Summary

An employee is regarded as living away from their usual place of residence if they would have continued to live at the former place if they did not have to work temporarily in a different locality.

Employees who move to a new locality with an intention to return to their old locality at the end of the appointment will generally be treated as living away from their usual place of residence.

However, whether or not an employee is living away from home will depend on the facts of each case. Factors such as the lifestyle of the employee, residency status, type of profession and industry are taken into consideration.

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

After considering the factors relating to your employee's personal circumstances, it is determined that his usual place of residence is in New York and therefore, whilst employed in Australia under his current contract, he is living away from his usual place of residence for the purpose of section 30 of the FBTAA.

Detailed reasoning

In determining whether the employee is living 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 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 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 the country of origin:

But for your business need to have an individual with his skills working in Australia, your employee would not be required to move temporarily to Australia and would continue to reside in his chosen home location.

Your employee's employment contract contains a maximum term agreement up to four years to commensurate with his 457 visa. This term is subject to him continuing to hold a 457 visa allowing him to work in Australia. If an appropriate visa is not held then his employment terminates immediately and he would be required to repatriate to the country of origin.

Your employee has no family ties in Australia. He has all of his social and business connections in the country of origin including an extensive array of professional market relations connections and family and friends.

Your employee will maintain his bank accounts, brokerage accounts, pension plan and other non retirement investments in the country of origin.

Your employee's assets will remain in the country of origin with the exception of funds which will be brought to Australia to sustain him and his family whilst in Australia, and the remuneration paid to him locally by you whilst working in the Australian office.

During his employment with you in Australia, your employee is intending to reside in rental accommodation.

Your employee has no intention to acquire any property or other significant investments in Australia.

It is the intention of your employee and your understanding, for your employee to return to the place of origin at the successful completion of his employment in Australia and in time to begin his daughter's schooling.

Therefore, it is determined that his usual place of residence is in the place of origin and, whilst employed in Australia under his current contract, he is living away from his usual place of residence for the purpose of section 30 of the FBTAA.

If the answer to question 1 is yes, is the proposed allowance a living-away-from-home allowance (LAFHA) pursuant to section 30 of the FBTAA?

Summary

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

· 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

· (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:

· 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 his or her usual place of residence in order to perform the duties of employment.

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.

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?

The employee is considered to be living away from his usual place of residence as detailed under question 1 above.

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.

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

Summary

The taxable value of a living-away-from-home allowance fringe benefit can be reduced by the exempt food component.

As you are only paying the exempt food component the taxable value of the living-away-from-home allowance fringe benefit will be reduced to nil.

Detailed reasoning

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 solely consists of a food component. Therefore, the taxable value will be nil if the amount of the allowance is equal to the exempt food component.

'Exempt food component' is defined 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

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

· whichever of the following is applicable:

· (iii) 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;

(iv) 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.

As the employee will provide 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 his family.

In your application you advised that you will only be paying the exempt food component. Therefore, as you are only paying the exempt food component the taxable value of the living-away-from-home allowance fringe benefit will be reduced to nil.

If the answer to question 1 is yes, will the reimbursement of the employee's rental expenses be an exempt benefit pursuant to section 21 of the FBTAA?

Summary

Section 21 of the FBTAA exempts an expense payment benefit where the expense is in respect of accommodation solely because the employee is living away from home.

Therefore, as the employee is incurring the accommodation expense because he is required to live away from his usual place of residence in order to perform the duties of his employment, the reimbursement of the rental expenses will be an exempt benefit.

Detailed reasoning

In general terms, section 21 provides an exemption from fringe benefits tax for the payment of accommodation expenses incurred by an employee who is required to live away from his or her usual place of residence in order to perform the duties of their employment.

Section 21 states:

Where:

· an expense payment benefit is provided in a year of tax to a current employee of an employer in respect of his or her employment;

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

· the accommodation is not provided while the employee is undertaking travel in the course of performing the duties of that employment;

· the accommodation is required solely 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; and

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

· the employee's usual place of residence; and

· the place at which the employee actually resided while living away from his or her usual place of residence;

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

For this section to apply there are five conditions that must be met. They are:

· an expense payment must be provided to a current employee of the employer;

· the recipients expenditure must be in respect of accommodation for eligible family members;

· the accommodation must not be provided while the employee is undertaking travel in the course of performing his or her employment;

· the accommodation must be required solely because the employee is required to live away from his or her usual place of residence in order to perform their duties of employment; and

· the relevant declaration must be provided to the employer.

Each of these requirements are satisfied as:

· the employee is a current employee;

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

· the employee is not travelling;

· the accommodation is solely required because the employee is required to live away from his usual place of residence; and

· the employee will provide you with a living-away-from-home declaration.

Therefore, the reimbursement of the employee's rental costs will be an exempt benefit under section 21 of the FBTAA.