Edited version of private ruling

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Ruling

Subject: Living-away-from-home allowance

Question

Will the allowance paid to your employee be a living-away-from-home allowance pursuant to subsection 30(1) of the Fringe Benefits Tax Assessment Act (1986) (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.

The scheme commenced on

1 July 2009.

Relevant facts and circumstances

Relevant facts

Your employee is a foreign national.

You are about to enter into a new employment agreement with the employee.

This employment agreement will incorporate an allowance that comprises:

· a payment as compensation for the costs incurred in renting accommodation in Australia; and

· a payment for the additional expenditure incurred on food while living in Australia.

The accommodation component is based on the rental amount shown in the rental contract entered into by the employee.

The food component is based on the amount shown for one adult in Taxation determination TD 2010/4 less the statutory food amount of $42.

Since commencing employment the employee returned to their residence in the overseas country for three weeks over Christmas and they intend to return approximately every three months.

The employee intends to get married in the overseas country.

Your employee holds no assets in Australia, other than one bank account. In the overseas country the employee holds bank accounts, an investment account, and is the beneficiary of family trusts.

Your employee's relatives live in the overseas country.

Your employee intends to complete a living-away-from-home declaration for the appropriate period once the new agreement is reached.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act (1986) section 30

Fringe Benefits Tax Assessment Act (1986) subsection 30(1)

Fringe Benefits Tax Assessment Act (1986) subsection 136(1)

Reasons for decision

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

(a) 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:

(b) 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

(a) 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.

(b) 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.

(c) 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 Maquarie 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 and the principals outlined in MT 2030, the following factors indicate that your employee is living away from her usual place of residence:

· the employee is a resident of the overseas country;

· the employee will be regularly returning to the residence in the overseas country;

· the employee holds a bank account, investment account and is a beneficiary of various family trusts in the overseas country;

· the employee has family ties in the overseas country;

· the employee intends to return to the overseas country to be married;

· the employee does not own a home in Australia, or belong to any professional bodies or hold club memberships in Australia;

· the employee has stated an intention to return to live in the overseas country; and

· your employee intends to complete a declaration for the allowance received.

Therefore, as the usual place of residence is in the overseas country and the employment location is in Australia, it is accepted that the expenses arise as a result of the employee being required to live away from her usual place of residence in order to perform her 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.